www.icmai.

in October 2018 l The Management Accountant 1

2 The Management Accountant l October 2018 www.icmai.in
www.icmai.in October
August 2018 l The Management Accountant 3
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MANAGEMENT ACCOUNTING

Management Accountants'
Understanding of Cultural
Differences

44

4 The Management Accountant l October 2018 www.icmai.in

www.icmai.in
www.icmai.in
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October
October 2018
l 2018
The Management Accountant
5
EDITORIAL

Greetings!!!

Management Accounting Research can provide companies with insight in using management
accounting systems to better achieve strategic and operating objectives. It explains or predicts how
the design of managerial accounting systems will affect management actions and an organization’s
success, or how internal and external organizational forces will affect the design of management
accounting systems.

The Global Management Accounting Principles were created for this era of business. Management
accounting is at the heart of quality decision-making, because it brings to the foremost relevant
information and analysis to generate and preserve value.

In the contemporary business scenario, Managerial accounting is backbone for

any types and forms of organizations irrespective of its size or members. Modern
accounting management has innovated the managerial accounting that plays an
important role in planning and controlling the cost objectives in order to make
decision making more effective.

The field of management accounting research is dynamic and constantly

evolving. Therefore it is beneficial to step back at times and observe the key
themes and patterns that are emerging. Management Accounting Research aims
to serve as a vehicle for publishing original scholarly work in the field of
management accounting.

The global management accounting research is applying the accounting and

financial management principles in order to create value, protect and increase for the
shareholders of the institutions for profit or non-profit in the public body and private
sector. In a short statement, it is interested in the intra-business information and
measuring this information for the sake of organizational control and development. In
this sense, the management accounting research has been important from past until
now for both the production facilities and the service facilities. Especially in recent
years, within the context of accounting applications, the management accounting
practices have developed considerably. Modern management accounting techniques
have also made great changes in process management.

The changing roles of Management Accountants have redefined them as corporate

decision makers, business consultants, business partners and analysts. Management
accounting has always been an area dedicated to support decision making processes, thus
taking into account dynamic changes in the business environment.

This issue presents a good number of articles on the cover story theme ‘Global Management
Accounting Research’ by distinguished experts and authors. We look forward to constructive
feedback from our readers on the articles and overall development of the journal. Please
send your mails at [email protected]. We thank all the contributors to this important issue
and hope our readers enjoy the articles.

6 The Management Accountant l October 2018 www.icmai.in

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 -: PAPERS INVITED :-
Cover stories on the topics given below are invited for
‘The Management Accountant’ for the four forthcoming months.
 Innovation in Skills Development and development: Challenges and
November 2018 Skills Management that reach SMEs Opportunities
e
em

Subtopics
Th

 Strategies for Job Creation, Skills  Skill development as a sustainable

Skill Development and Development and Social Protection growth strategy
Employability  Skill Gaps and Employability: Higher  Towards a Reskilling Revolution: A
Education in India Future of Jobs for All
 Empowering women through skill  Role of CMAs

 CSR & Social Entrepreneurship  Corporate - NGO partnership for

December 2018 successful CSR programs
e

 Companies Amendment Act & CSR

em

Subtopics
Th

 CSR Accounting & Audit

Corporate Social  CSR initiatives in SMEs
Responsibility & Beyond  Impact Analysis of CSR activities
 Comparative analysis of CSR
initiatives in public v/s private sector  Business Ethics and CSR

 India Post Payments Bank (IPPB): A  Indian banks' NPA woes

January 2019 revolutionary step towards financial  Scams: recurring scar on Indian banking
e
em

Subtopics

inclusion sector
Th

Indian Banking Scenario:  Digital banking: The Road Ahead  RBI’s new measures towards restructuring
Dynamism and of the domestic banking industry
 Financial Reforms & Innovation in Indian
Optimism Banking Sector  Insolvency code: the biggest reform in
banking
 Demonetization effect

 Corporate Governance Global Framework  Corporate Governance and its Impact on

February 2019 Audit Practice
e
em

 Corporate Governance in India & SEBI

Subtopics
Th

Regulations  Corporate Law and Corporate Governance

Contemporary Issues in
Corporate Governance  E-governance  Mergers and Takeovers
 Governance and Sustainability  The Role of Institutional Investors in
Corporate Governance

The above subtopics are only suggestive and hence the articles may not be limited to
them only.
Articles on the above topics are invited from readers and authors along with scanned copies of their recent
passport-size photograph and scanned copy of declaration stating that the articles are their own original and have
not been considered for publication anywhere else. Please send your articles by e-mail to [email protected] latest by
the 1st of the previous month.

Directorate of Journal & Publications

The Institute of Cost Accountants of India (Statutory body under an Act of Parliament)
CMA Bhawan, 4th Floor, 84 Harish Mukherjee Road, Kolkata - 700 025, India
Board: +91-33- 2454 0086 / 87 / 0184, Tel-Fax: +91-33- 2454 0063
www.icmai.in

8 The Management Accountant l October 2018 www.icmai.in

www.icmai.in October 2018 l The Management Accountant 9
 PRESIDENT’S COMMUNIQUÉ

“Only those who will risk going too far can

possibly find out how far one can go.”
- T.S. Elliot

CMA AMIT ANAND APTE

President
The Institute of Cost Accountants of India

My Dear Professional Colleagues, for making this campaign a success.

Observance of November 2018 as Career Counselling Month
Namaskaar!!!
Friends, as we all know that our Institute thrives on the student
On behalf of the Institute and also on my personal behalf, I strength and they are the brand ambassadors of the Institute after
congratulate CMA Anil Kumar Chaudhary on being appointed passing out from the Institute. I propose to observe the month of
as Chairman of Steel Authority of India Limited (SAIL) and CMA November 2018 as Career Counselling Month all over the country
Rakesh Kumar on being appointed as Chairman cum Managing involving all the Regional Councils and Chapters of the Institute.
Director of NLC India Limited. It is a matter of pride for the entire The idea is to give students a clear understanding about the CMA
Cost and Management Accountants fraternity. Profession and its role towards the socio-economic growth of the
country. A well planned career counselling program will boost the
Amendments in SEZ Rules, 2016 notified by Ministry morale & confidence of prospective students and give them right
of Commerce direction which could be beneficial for the whole society and the
The Ministry of Commerce on 19th September 2018 notified the nation. Details about the scheme will be announced shortly. I urge
Special Economic Zones (Amendment) Rules, 2018. The proposed the members to give constructive suggestions on President© s Portal
amendments are aimed at fulfilling the objective of trade facilitation, to make this endeavour a grand success.
ease of doing business and dispute redressal of the Government.
Two Days Annual Seminar – 2018 by Ranchi Chapter
Alignment of the regulations with GST, FTP and instructions issued
periodically will hopefully provide procedural and compliance ease I am pleased to share that I along with CMA Balwinder Singh,
to SEZs. In an amendment to rule 12 sub-rule 7, words “goods from Vice President attended the two days Annual Seminar on the
an Independent Chartered Engineer” are being substituted with the theme ‘Changing Economic Structure of India – Role of CMAs in
words “goods and services from an Independent Chartered Engineer Implementing Reforms©organised by Ranchi Chapter of the Institute
or Independent Chartered Accountant or Cost Accountant as the during 8th & 9th September, 2018 at Ranchi, Jharkhand.
case may be”. This will open up new avenues to the practicing Cost
Members Meet at Kolkata
Accountants.
Our Institute organized a "Members Meet with President" on
Activities at Regional Councils & Chapters September 10, 2018 at CMA Bhawan, 12-Sudder Street, Kolkata.
Campaign on Swachhta Hi Sewa 2018 (SHS) During the meet, I had the opportunity to deliberate on the various
issues & matters of their concern related to the profession.
I feel happy to share with you that on receipt of letter from Shri
Northern Regional Students Convention - 2018
Injeti Srinivas, IAS, Secretary to the Government of India, Ministry
of Corporate Affairs, requesting us to undertake a campaign The Northern India Regional Council (NIRC) of the Institute
‘Swachhta Hi Sewa’, from 15th September to Gandhi Jayanti on 2nd organised a Northern Regional Students Convention - 2018 on
October 2018, our Headquarter at Kolkata, Delhi Office, all regional the theme: “Prism of Possibilities” on 17th September 2018 at New
offices and chapters of our Institute participated wholeheartedly Delhi. Recently qualified CMAs and Students from Northern Region

10 The Management Accountant l October 2018 www.icmai.in

participated in this Convention. I was happy to interact with the CMA Dr. P.V.S. Jagan Mohan Rao, Vice President of SAFA.
students and motivate them.
IFAC PAIB Committee meeting
CAT Department The Institute of Singapore Chartered Accountants (ISCA) hosted
I wish to inform that the CAT Committee of the Institute has the International Federation of Accountants (IFAC) Professional
decided to expand the CAT Course in other States and to take Accountants in Business Committee (PAIB) meeting and events at
concrete steps to inspire the existing 347 Recognised Oral Coaching Singapore during 26-28 September, 2018. My council colleague
Centers (ROCC) in order to improve admission in CAT Course. I CMA Dr. P.V.S. Jagan Mohan Rao, member of the PAIB Committee
am happy to inform that 3279 students have been registered for attended the meeting and I participated in the meeting as Technical
CAT Course for December 2018 Term. I am pleased to share that Adviser.
“GUIDELINES FOR APPOINTMENT OF CAT COURSE COUNSELLORS”
Training Program on Cost Audit and International Conference
has been hosted on the Institute website. I request the members
to come forward and take up the assignment. They may nominate
by ICMA Bangladesh
other interested candidates, who are fitting in the eligibility criteria, Technical support from the Institute of Cost Accountants of India
prescribed in the guidelines. was provided in organizing a training program on Cost Audit to The
Institute of Cost and Management Accountants of Bangladesh
Campus Placement which was held on 21st & 22nd September, 2018 at Dhaka. Experts
I am glad to share with you that Campus Placement Drive is being on the subject from the Institute made presentations on the scope,
organised by the Institute in the month of September and October methodology, benefits and practical aspects of cost audit. The
2018, for absorbing our final qualified students. I am confident Institute of Cost and Management Accountants of Bangladesh was
that the June 2018 final qualified students would find professional extremely happy about our gesture.
career through this programme. We have already placed 62 qualified
CMAs in various organizations in Mumbai during the campus in I am happy to share that I was invited by the Institute of Cost
September. On behalf of all the members of our fraternity, I wish and Management Accountants of Bangladesh (ICMAB) to its
them all success in their campus placement. The campus placement International Conference on the “Role of Professional Accountants
initiative would be a continuous one and your Institute will make all towards Achieving SDGs” held on September 23, 2018 at Dhaka,
efforts to find professional career for all the CMAs. Bangladesh. Being one of the key resource person of the Conference,
I spoke on Financial Accountability and Transparency in Attaining
International Affairs Department SDGs- India©s perspective and on Role of Professional; Accountants
CIPFA International Conference at Abu Dhabi towards Achieving SDGs.

CMA P Raju Iyer, Chairman, PD & CPD Committee of the Institute Insolvency Professional Agency (IPA) of Institute of Cost
attended the International Conference organized by the Chartered Accountants of India
Institute of Public Finance & Accountancy (CIPFA) on September 23 For continuous professional development and training of
& 24, 2018 at Abu Dhabi. Insolvency professionals, the Insolvency Professional Agency of the
Institute organized various Round table Interactions and workshops
SAFA meeting and events at Karachi, Pakistan
during the month on: Use of Forensic Audit in conducting Insolvency
ICAP FRED III 2018: The 3rd Financial Reform for Economic cases, IBC – Bankers Perspective, Recent judgements on IBC, Role
Development Forum in Asia (FRED III) was held in Karachi, Pakistan of Information Utility under IBC.
on 24th of September 2018 on the theme ‘Maximizing Private Sector
Finance and Solutions for Development - Role of the Accountancy Also, to spread awareness about Insolvency and Bankruptcy Code
Profession’. FRED III was led by SAFA and hosted by the Institute amongst Members webinars were organized on: Latest amendments
of Chartered Accountants Pakistan and the Institute of Cost & in IBC Rules and Regulations, Valuation approaches and Methods,
Management Accountant, Pakistan. CMA Dr. P.V.S. Jagan Mohan working mechanism of Information Utility and Practical issues in
Rao, CCM and Vice President, SAFA was one of the speaker at the CIRP.
session on “Gearing for the future: New Skills for the profession”.
Insolvency Professional Agency of the Institute is organizing jointly
The South Asian Federation of Accountants (SAFA) held its 54th with IPAs of the ICSI and the Institute of Chartered Accountants of
Board, 88th Assembly and Committee meeting on 25th September India pre registration training for IPs at Kolkata from 1st October to
2018 hosted by the Institute of Chartered Accountants of Pakistan 7th October, 2018.
(ICAP) at Karachi, Pakistan. It was attended by my council colleague

www.icmai.in October 2018 l The Management Accountant 11

 PRESIDENT’S COMMUNIQUÉ

Professional Development and CPD Committee congratulate the Chairman and Members of the Technical Cell of
Representation with Government, PSUs, Banks and Other the Institute for carrying out this important task effectively. I hereby
Organizations: urge the members to send their queries in large numbers to the
Technical Cell at [email protected] in order to get their doubts
PD Directorate is sending representation letters to various cleared on the above mentioned topics.
organizations for inclusion of cost accountants for providing
Cost Accounting Standards Board
various professional services. I am pleased to inform you that,
on the request made by the Institute, Madhya Pradesh Van Vikas Friends, I wish to assure you that the Council of the Institute
Nigam Ltd., Bharat Sanchar Nigam Limited, Urban Development is committed to the capacity building of the members in order to
and Housing Department, Municipal Council, Jhumri Taliya, enable them grabbing all the opportunities coming their way. With
National Capital Region Transport Corporation Limited, Andrew a view to forward this agenda, the Cost Accounting Standards Board
Yule & Company Limited, Airport Authority of India, National Textile CASB in association with the PD&CPD Committee of the Institute
Corporation Limited, Himachal Pradesh Power Corporation Limited, is organising a National Seminar on Cost Governance on October
Infrastructure Development Authority, Bihar included CMA in their 7, 2018 in Chandigarh. The Seminar will have focused discussions
Tenders/EOIs issued during September, 2018. by the eminent experts on Cost Accounting Standards, Standards
on Cost Auditing, Companies (Cost Records and Audit) Rules &
I sincerely appreciate our Regional Councils and Chapters for related areas and Changes due to Ind AS & GST Implementation.
organizing 41 programs, seminars and discussions during the Further details of the seminar are available at https://icmai.in/
month on the topics of professional relevance and importance for upload/Institute/Events/National-Seminar-CG-07102018.pdf.
the members such as, Indian Debt Market, Audit under GST Acts, I urge the members of the Institute to get themselves registered
Registered Valuer-New Opportunity for CMAs, Increasing trend of for the National Seminar at the earliest and get their professional
NPA causes and Remedies and Role of Cost Accountants, IT Tools & knowledge enriched by attending the same.
Technologies for Business, Recent Amendments and Developments
in Company Law and so on. I hope our members will be immensely Taxation Committee
benefited with these programmes. Third Batch of Certificate Course on GST has been launched
successfully and admissions are going on. Another breakthrough
I am happy to share that I was invited by the Institute of has been achieved by successfully including the name of Cost
Company Secretaries of India (ICSI) to address at the session on Accountants in certifying the refund of IGST claimed by Exporters
‘Connecting from Grass roots to Global –360 degree transformation and it has been made official by the CBIC with Circular No.
of CS Professional’ of its 46th National Convention of CS and 6th 33/2018-Customs, dated: 19th September, 2018. Four seminars have
International Conference held during August 30-31 and September been conducted in the month on the topics - Tax Audit, Specified
1, 2018 at Bhubaneswar. Financial Transaction Reporting, Tax Audit under Income Tax Act -
Recent Amendments & Issues, Analysis of GST Audit Proforma &
Governance Now 3rd India Banking Reforms Conclave 2018
Rules with Inspection, Search and Seizure.
I am pleased to inform that I was invited to address during the
inaugural session of the India Banking Reforms Conclave 2018 on I wish prosperity and happiness to members, students and their
the theme “Rebooting Banking with Reforms and Digital Innovations” family on the occasion of Mahatma Gandhi Jayanti, Durga Puja,
organised by ‘Governance Now’ on 7th September 2018 at Mumbai. Vijayadashami & Maharishi Valmiki Jayanti and wish them success
The Institute was the Institutional Partner for this event. I was able in all of their endeavours.
to stress upon the role of Cost Audit in identifying stressed assets
of banks. Thanking you and Namaskaar!!!

Technical Department Warm Regards,

Technical Cell of the Institute
I am pleased to inform that Technical Cell of the Institute has
started responding to the general queries of the members relating
to the Cost Accounting Standards, Standards on Cost Auditing and
Companies (Cost Records and Audit) Rules etc., in a very structured CMA Amit Anand Apte
and time bound manner. I hope that the members are finding the 1st October, 2018
opinion of the Technical Cell useful. I take this opportunity to

12 The Management Accountant l October 2018 www.icmai.in

www.icmai.in October 2018 l The Management Accountant 13
 ICAI-CMA SNAPSHOTS

The Institute of Singapore Chartered Accountants (ISCA) hosted the International Federation
of Accountants (IFAC) Professional Accountants in Business Committee (PAIB) meeting and
events at Singapore during 26-28 September, 2018.
CMA Dr. P.V.S. Jagan Mohan Rao, member of the PAIB Committee attended the meeting and
CMA Amit Anand Apte, President has participated in the meeting as Technical Adviser from
the Institute

CMA Niranjan Mishra, Chairman, Regional

Council & Chapters Co ordination Committee
and Council Member addressing the group of
representatives from Eastern India Regional
Council and Chapters under EIRC at the “Regional
Council and Chapters Co ordination Meet”
organised at Ranchi on 29th September 2018.
From Left: CMA Niranjan Mishra, Chairman,
Regional Council & Chapters Co ordination
Committee and Council Member, CMA Cheruvu
Venkata Ramana, Vice Chairman, EIRC, CMA
Pranab Kumar Chakrabarty, Secretary, EIRC,
CMA Bidyadhar Prasad, Chairman, Ranchi
Chapter.

CMA Cheruvu Venkata Ramana, Vice Chairman,

EIRC, CMA Niranjan Mishra, Chairman, Regional
Council & Chapters Co ordination Committee
and Council Member, CMA Pranab Kumar
Chakrabarty, Secretary, EIRC, CMA Bidyadhar
Prasad, Chairman, Ranchi Chapter at the
“Regional Council and Chapters Co ordination
Meet” organised at Ranchi on
29th September 2018.

14 The Management Accountant l October 2018 www.icmai.in

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www.icmai.in October 2018 l The Management Accountant 15

COVER STORY
DEVELOPMENTS IN GLOBAL
MANAGEMENT ACCOUNTING:
RESEARCH PRACTICE GAP
AND
DIRECTIONS FOR FUTURE RESEARCH

16 The Management Accountant l October 2018 www.icmai.in

 CMA (Dr) Amarendra Kumar
Global Financial Analyst (FAM)
DXC Technologies
Bangalore

T he accounting environment has changed dramatically

over the past decade. Chief financial officers (CFOs)
are suggesting that the management accountant
should aspire to move from “counter of wealth” to “creator
Management Accounting Development
Modern management accounting practices are constantly
changing, which establishes a need to update our collective
understanding every now and then.
of wealth and influencer of strategy.” We have become less
transaction focused and more directed toward decision Since Johnson and Kaplan (1987) first alerted the
support and performance management activities. accounting community to management accounting’s
apparent loss of relevance to management and other
With CFOs continually looking for greater efficiencies information users, there has been a plethora of (particularly)
and ways to add value to the business, it is important prescriptive research suggesting changes to management
that Management Accountant embrace digitisation and accounting systems, techniques and practices. In other
look for ways to further develop their own skill set to words, there has not been sufficient change in management
accommodate the change. According to a 2017 survey by accounting techniques to match the changes in the
Robert Half Australia, technology is the single biggest factor organisational environment, and to support the growing
impacting the finance function today and in the future. demand for information. Recommended ‘solutions’ to the
Globalisation and technological progress are making this relevance problem have included innovative costing and
more complicated.Successful organisations have effective information frameworks such as Activity Based Costing, life
management accounting functions. It is the combination cycle costing; target costing; quality costing; functional cost
of competent people, clear Principles, well managed analysis; throughput accounting, strategic management
performance and robust practices that make a management accounting; shareholder value techniques; Balanced
accounting function effective. Scorecard, Key Performance Indicators, Economic Value
Added, and Benchmarking.
The changing roles of Management Accountants have
redefined them as corporate decision makers, business More recently, Scapens et al. (2003) carried out an
consultants, business partners and analysts. Management investigation regarding the changing nature of management
accounting has always been an area dedicated to support accounting. This study presents four changes in the broader
decision making processes, thus taking into account business environment that have had impact on management
dynamic changes in the business environment as well as accounting in recent years: (i) globalisation and customer
technological advances there is a strive to change the focus; (ii) technological change; (iii) changing organisational
practice of management accounting and the role played by structures; and (iv) fashion and other internal factors,
the managerial accounting professionals such as ‘a feeling at top-level management that change is
necessary’ and ‘changing management information needs’.
Management accounting change and the changing roles
of management accountants have dominated both the In 2012 M. Fraser refers to five basic areas that should be
professional and academic research literature in recent of interest to specialists in management accounting in the
years.The field of management accounting research is future [Fraser 2012].
dynamic and constantly evolving. Therefore it is beneficial
to step back at times and observe the key themes and 1. Good accounting goes beyond compliance and is about
patterns that are emerging. providing useful information to management and

www.icmai.in October 2018 l The Management Accountant 17

 COVER STORY

strengthening accountability processes. Big data, data analytics and business analytics (Cokins
2013; Krishnan 2015; Schneider et al. 2015) combined
2. Managerial accounting specialists should improve with the intensely networked world are rapidly changing
investment appraisal techniques, because managers the business environment, business models as well as
may be missing opportunities if accounting specialists organizational structures that also affect the accounting
do not use the full range of available investment practices& Future area of research.
assessment tools.
Because Management Accountants are normally deeply
3. Performance management system should be revised, involved in PBF (planning, budgeting, and forecasts), it is
because various economic conditions and different important to be aware of how big data, risk measurement
organizational strategies require different thinking and and different techniques can be used to improve
behavioral patterns. performance. CFOs must deploy techniques such as rolling
forecasting with moving targets (that reflect real-time
4. Management accounting tolls should be developed changes in external factors) in combination with tools within
to better understand cost drivers in the organization. predictive and prescriptive analytics if they should make
Management accountant should perform the role empowered decisions. New skills and new ways of using
of financial advisor to support manager in decision data are important. Only this can retain their influence.
making. They also need to know about statistical modelling, data
mining, advanced predictive analytics, and risk forecasting
5. The emphasis should be placed on planning, budgeting techniques.
and forecasting. There are important aspects in
forecasting – sharing it and having those who own it The Research-Practice Gap
simultaneously accountable for it. Moreover, good Although management accounting tools and techniques
communication is also required. are developed to solve practical problems in organizations,
there is a lot of criticism of management accounting
Much more extended look at the development trends research for not having an impact on practice. A range
in the field of management accounting as proposed by of management accounting techniques emerged, for
Gary. Cokins. He described seven major trends that would example: Activity Based Costing (ABC), Balanced scorecard,
characterize the development of management accounting economic value added, costs of quality reporting, strategic
in the next decade [Cokins 2013; 2014]. management accounting (Adler et al., 2000; Tan et al.,
2004) , yet allegations persist that a gap exists between
1) Expansion from product to channel and customer management accounting education and practice in
profitability analysis, contemporary management accounting.

2) Management accounting’s expanding role with A big frustration has been – and is still of big concern -
enterprise performance management, that few research findings and results have never been used
in the practical world (Kaplan, 1998; Kasanen et al., 1993;
3) The shift to predictive accounting, Merchant, 2012; Otley, 2001; Rautiainen et al., 2017). The
basic problem for management accounting has been that
4) Business analytics embedded in EPM methods, – in spite of a huge number of researcher, paper, articles,
conferences, and journals - not much impact on society and
5) Coexisting and improved management accounting on practice have been documented. Much discussion in
methods the management accounting literature has centered on the
need to direct greater attention to the practical relevance
6) Managing information technology and shared services of academic research.
as a business, and
In recent times a number of commentators have indicated
7) The need for better skills and competency with that accounting research has become insufficiently
behavioral cost management innovative and increasingly detached from practice.
Differing views about the engagement of academic research
An essential turning point is the ongoing digitalization. with practice also emerged in discussions. For example:

18 The Management Accountant l October 2018 www.icmai.in

 “Practitioners are simply not interested in academic applicability of accounting textbooks, coursework, and
research and how academic research can help them. programs.

“Academics do not seem to be interested in engaging with Role of Professional Accounting Bodies
practice and practitioners.” This is occasionally evident, for example, through
collaboration between professional accounting bodies
“I think practitioners question the relevance of academic and academics to produce sponsored research, sponsored
research; if it were relevant, academics would make specialised conferences and public policy contributions.
themselves understood.” Professional accounting bodies perceive the gap between
academic research and practice in management accounting
“Some academics choose practically relevant topics to be of limited concern to practitioners. The two most
suggested by practitioners, but these academics are in significant barriers to research utilisation by practitioners
the minority.” are identified as: difficulties in understanding academic
research papers; and limited access to research findings.
“Academics are considered elitists as they speak with In acting as a conduit between the worlds of academia
their own jargon; they use complex mathematical and practice, professional bodies have an important
formula; they shut out potential practitioner readers by role to play by demonstrating the mutual value to both
doing this; the aim of the game is to publish at all ends, academics and practitioners resulting from a closer
not to disseminate knowledge or improve practice “ engagement between management accounting research
and practice. Nevertheless, management accounting is an
Many suggestions have been advanced to bridge the gap applied field that could be expected to provide tools and
between research and practice : techniques for practitioners.

Both academics and practitioners would benefit from Arguably there are signs that times are changing.
a closer relationship – academics might gain access Internationally there are sporadic signs of improving
to data and more logical explanations, enhance their interactions between the accounting profession, higher
reputation, and incorporate actual data into their education providers and academics. This is witnessed by
research and teaching, while practitioners might receive the inclusion of academic work inprofessional publications;
ideas contributing to the efficiency and effectiveness of research funding provided by the accounting profession;
their organizations andthe commissioning and publishing of research on
contemporary issues facingaccounting academics by the
Academics should attend practitioner conferences and accounting profession. Academics and practitioners need
events to interact with practitioners, and practitioners to work together to create new academic discoursesand
should interact with the academic community to learn practice in emerging area of management accounting.
about their research agenda and why they research
certain topics Directions for Future Research
In any discipline research ideas can grow from a variety
Academics could develop research questions in line of sources. Management accounting research over the last
with the need of practitioners. They might include the decade has made tremendous head way in the form of
implications for practice in each paper and conduct relevance of topics and strictness of methods. However, one
research with practitioners. of the challenges facing researchers today is continuation
of this momentum and the selection of innovative and
Practitioners should be educated on how to read, relevant topics.
interpret and use accounting research.
In the present economic scenario , to appreciate the depth
Several related motivations or objectives for practice- of application of management accounting in managerial
oriented research include desires to (1) gain increased decision making and governance, it is necessary to carry
understanding of why organizations use certain techniques out an IMA style sample surveys [Raef Lawson ( 2012) ,
and practices, (2) gain increased understanding of how and Douglas & Larry (2012)] to identify the business interest
which techniques used in practice impact organizational and research gap.
performance, (3) inform practitioners, (4) increase the

www.icmai.in October 2018 l The Management Accountant 19

 COVER STORY

The direction of development of management accounting Refrences

research is line with the shift of paradigm of management 1. Johnson HT and Kaplan RS (1987), Relevance Lost: the Rise
accounting in practice supported by development of and Fall of Management Accounting, Harvard Business
technology. The direction will lead to the new strategy that School Press, Boston, US.
moves to contemporary management accounting. From a
research agenda Management Accounting Research has 2. Gary Cokins (2013), Top 7 Trends in Management Accounting,
seen improvement in incorporatingissues of importance to Strategic Finance, December: pp. 21-29.
practice, however, basic research and theorydevelopment
are still needed. Of necessity is still the building of theories 3. Siegel G (1999), “The Pace of Change in Management
andframeworks that explain and predict which firms will Accounting”, Strategic Finance, December, pp 71-72.
adopt specific methods.Academics are key players in
developing innovative accounting systems anddocumenting 4. Allot, A., 2000. Management accounting change, Management
the benefits and costs from those systems. Within the area Accounting (July/August), pp. 54-55.
of Management Accounting Research topics can be found
in the following sources: the existing literature, existing 5. Scapens , R. Robert and michael Bromwich (2010),
literature in related and other fields, and topics and Management Accounting Research : 20 years on,
challenges important to management. For researchers, the Management Accounting Research, 21:pp.278-284
difficulty arises in choosing areas that are of high priority
to practicing managers etc. 6. E. Pieter Jansen, (2018) “Bridging the gap between theory
and practice in management accounting: Reviewing the
Evolving Smart and digital TechnologyInnovations literature to shape interventions”, Accounting, Auditing &
involving big data, blockchain, AI and robotics applied or Accountability Journal, Vol. 31 Issue: 5, pp.1486-1509,
applicable to a wide set of Management accounting, as
well as the changing social, cultural, economic and political 7. Lee D. Parker , James Guthrie , Simon Linacre ( Management
contexts in which we live and work, can be expand in future Accounting Research: An Analysis of Recent Themes
Management Accounting Research. and Directions for the Future , Accounting, Auditing &
Accountability Journal, 2011, vol. 24, issue 1, 5-14
To sum up, in the field of management accounting the
literature has focused particular attention on what seems 8. Frank H Selto, , Sally K Widener, (2004), NEW DIRECTIONS IN
to have contributed to generating a gap between theory MANAGEMENT ACCOUNTING RESEARCH: INSIGHTS FROM
and practice, namely on those factors which have affected PRACTICE, in (ed.) Advances in Management Accounting
the impact of management accounting research by limiting (Advances in Management Accounting, Volume 12) Emerald
it. This research has been pivotal in offering strategies Group Publishing Limited, pp.1 - 35
aimed to eliminate those barriers which would prevent
management accounting research from becoming more
impactful. Despite this, some new avenues of research
can be identified in light of what management accounting
research has already highlighted and of what has been
accomplished by researchers in other disciplines. [email protected]

Articles invited
We invite quality articles and case studies from members in the industry
with relevance to Cost and Management Accountancy, Finance,
Management, and Taxation for publication in the journal. Articles
accompanied by color photographs of the author can be
sent to : [email protected]

20 The Management Accountant l October 2018 www.icmai.in

COVER STORY

EFFICACY OF
ECONOMIC
MEASURES OF
PERFORMANCE
IN
DETERMINING
THE MARKET
VALUE ADDED
(MVA) OF
SHARES

www.icmai.in October 2018 l The Management Accountant 21

 COVER STORY

CMA. Dr. P. Srikanth

Assistant Professor
ICFAI Business School (IBS)
Hyderabad

anagement accounting is witnessing landmark financial performance of a company.

changes in the recent past. One of the areas of
management accounting which is always in the The ‘Residual ROCE’ is the excess of ROCE over the
spotlight is ‘performance measurement’. The ‘cost of capital’. The fundamental difference between EVA
conventional accounting measures of performance are and ‘Residual ROCE’ is EVA takes into account operating
losing their importance due to their inherent limitations. profits while ‘Residual ROCE’ considers net profit. Besides,
They do not take into account the opportunity cost of ‘Residual ROCE’ is expressed in percentage terms while EVA
capital contributors’ in deriving the profitability measures. is in absolute terms.
The everlasting research in this area has been producing
well-reflected measures of performance whose efficacy Importance of the Study
is tested by empirical research by the academia and Economic measures of performance are theoretically
professional bodies of accounting. One type of such assumed to be superior measures of performance.
innovative and well-reasoned measures of performance are Establishing the superiority of the economic measures of
economic measures of performance. Economic Measures of performance can be done only through rigorous empirical
Performance are gaining their importance by virtue of their research backed by scientific methodology of research.
robustness to creative accounting. Economic measures of Moreover, there is a need for developing more number of
financial performance overcome the inherent limitation of economic measures and testing their relative importance
conventional accounting measures by taking into account in the performance measurement, because, no single
the opportunity cost of capital while calculating the profits measure can exhaustively embrace all the ideal features of
of a company. Despite having many advantages in using performance measurement tool. Hence, the present study
economic measures of performance, they are not used considers economic measures which are based on both
widely. It is due to the fact that their estimation is not easy operating profit and net profit. The present study focuses
and requires many assumptions. on the analysis of importance of the economic measures
of performance and how they are reflected through market
Economic Measures of Financial Performance value addition for the share.
Two economic measures of performance which can used
to measure the financial performance of a company are Findings of the study provide useful insights into the
‘Residual ROCE’ and Economic Value Added(EVA)’. informational efficiency of the market in terms of reflecting
the economic measures of profit on the market value of
The concept of EVA is analogous to the concept of shares.
‘residual income‘ in economics. The concept of EVA
stems from the economic concept of ‘residual income’ Literature Review
which takes into account the opportunity cost of owner’s Sakthivel N. (2011) found that the companies with
capital. EVA measures the residual income of a firm more high level of EVA are very highly valued and differ from
precisely and practically. Besides, while estimating EVA, valuation of companies with low and moderate EVA
NOPAT is considered as a proxy of accounting profit. groups. Based on this finding, it can be concluded that
NOPAT measures operating performance of a firm more there was significant association between MVA and EVA
accurately by excluding the tax saving in computation for companies in pharmaceutical industry. It was observed
of net operating profit, as tax saving is not the results of that there was significant difference in mean value
operating performance of the company rather it signifies creation across low, moderate and high total productivity

22 The Management Accountant l October 2018 www.icmai.in

for pharmaceutical companies. Regression analysis reveals Alternative Hypothesis: Economic measures of
that total productivity does not have explanatory power on performance have significant information content about
value creation in short-term, but it has some influence on the Market Value Added (MVA) of the shares.
value creation in the long-run in respect of pharmaceutical
companies. Madhavi Eswara at. el., (2015) examined Period of the Study
whether the select seven Indian companies from FMCG For the purpose of the present study, cross-sectional data
sector listed on NSE have created shareholder value in terms of select companies for the year ending 31st march, 2017
of EVA and MVA during the five years from 2010 to 2014. was considered.
MVA is considered as a proxy for determining the market
value of the firms. The study supports Stern Stewart’s Data and Methodology of the Study
claim that EVA is a superior predictor of market value of Data Sources: The data relating to the required variables
the firms compared to EPS and it has stronger relationship has been collected from CMIE Prowess Database.
and relevance to capital markets than other traditional
measures. Merugu Venugopal et. al., (2016) examined Sample Design of the Study
the shareholder’s value creation in Indian pharmaceutical The CMIE Prowess database has provided the data
companies by employing EVA during the study period relating to the required variables for the year ending 31st
2007-15. The study reveals that 39 firms out of 77 were march, 2017 for only 408 companies. Out of 408 companies,
wealth creators. The study concludes that the companies 75 companies with positive EVA were selected randomly.
with positive EVA will be able to attract investors in future. After selecting the 75 companies, some companies have
Anna Kijewska (2016) explained the impact of various been eliminated due to presence of outliers in the required
factors on the change in EVA. The assumption was that variables. Finally, 59 companies are leftover for the analysis.
every company is in a different financial condition, so the
impact of various factors on the EVA change is different. In Estimation of Market Measure and Economic
case of sample companies, difference in influence of various Measures of Performance
factors has been observed for three consecutive periods,  Market Value Added(MVA): Market Value Added is
the study concludes that for each company and for each computed as the excess of market value of capital over
year, managers should consider the factors that influence the book value of Capital. It is indicates the performance
the EVA change. of the company from shareholders viewpoint. Higher
value of MVA implies effective management and strong
Research Gap operational capabilities of the company. The following
The existing literature on this of area of research has equation outlines the computations of MVA.
documented the empirical research covering the analysis MAV=(Market Capitalization+Debt)-(Book Value of
of relationship between market value of a share and EVA
Equity+Debt)
vis-à-vis conventional financial performance measurement
metrics. One insightful research gaps has been identified  Economic Value Added (EVA): EVA is computed as the
from the literature review viz., the existing studies have excess of Net Operating Profit After Tax(NOPAT) over
considered EVA only as a measure of performance. In the cost of capital (in amount) of the company. The
the present study, apart from EVA, ‘residual ROCE’ is also following equation outlines the computations of EVA.
considered as an economic measure of performance and
EVA=NOPAT-[COCiCE]
the importance of the two measures is analyzed.
In the above equation, COC refers to percentage of cost
Objective of the Study of capital and CE refers to capital employed.
The objective of the study is to analyze the informational
efficiency of the stock market in terms of reflecting  Net Operating Profit after Tax (NOPAT): Net
economic measures of performance on the Market Value Operating Profit after Tax is computed by multiplying
Added (MVA) of shares. the Earnings before Interest and Tax (EBIT) with 1
minus tax rate. NOPAT is a more accurate measure
Hypothesis of the Study of operational efficiency of a company, as it does not
Null Hypothesis: Economic measures of performance do consider tax savings which arise from interest expenses.
not have significant information content about the Market Because, tax saving arising from interest expenses do
Value Added (MVA) of the shares. not indicate the operational efficiency of the company.

www.icmai.in October 2018 l The Management Accountant 23

 COVER STORY

Symbolically, NOPAT can be presented as follows.

NOPAT=EBITi(1-t)
Performance measurement is one of the
In the above equation, ‘t’ refers to tax rate.
core areas of management accounting
and it is also the main thrust of  Cost of Capital (COC): In order to calculate the cost
research in Management Accounting. of capital, weights have been assigned based on the
The invention of modern tools and market value of equity and debt. The cost of debt is
computed by dividing the interest expenses by current
techniques in performance measurement
year outstanding debt and cost of equity is derived
is the results of consistent research from CAPM. Symbolically, %COC can be presented as
efforts made by the eminent management follows.
accounting professionals and academia. %COC=[KdiWd]+[KeiWe]
The conventional accounting metrics
In the above equation, Kd is cost of debt, Wd is weight
of financial performance do not take
assigned to debt, Ke is cost of equity, We is weight
into account the opportunity cost of assigned to equity. Weights are assigned based on
capital contributors. Hence, they may market value of debt and equity.
not indicate the economic substance of
the financial performance of a company  Cost of Equity: Cost of Equity has been computed
by employing Capital Asset Pricing Model (CAPM).
in a well-reflected manner. Economic
Under this model, cost of equity is equal to the sum
measures of financial performance of ‘risk free rate of interest’ and ‘market risk premium’
overcome this limitation by taking multiplied by the beta of the concerned security. As
into account the opportunity cost of the market risk premium and risk free rate of return
capital while calculating the profits of are common for all the securities in the market, it is
the beta of the concerned security which decides the
a company. In the present study, two
cost of equity. Higher the value of beta, greater the
economic measures of performance cost of equity and vice versa. CAPM can be expressed
are employed to predict the ‘Market in equation form as follows
Value Added (MVA)’ of the shares. They Ke=Rf+β(Rm-Rf)
are ‘Residual ROCE’ and ‘Economic
In the above Equation, Ke is cost of equity, Rf is risk free
Value Added(EVA)’. The fundamental
rate of return, β is the beta value of the concerned security,
difference between EVA and ‘Residual Rm is market return. The weighted average call money rate
ROCE’ is EVA takes into operating is considered as proxy for risk free rate of return.
profits while ‘Residual ROCE’ considers
net profit. The present study unveils an Functional Relationship between Market Value
Added(MVA) and Economic Measures of Performance
intriguing finding that ‘Residual ROCE’
The functional relationship between MVA and economic
was effectively predicting the MVA measures of performance has been analyzed in two different
of the shares compared to EVA. The approaches. The MVA and EVA (Economic Value Added) are
superior predictability of the ‘Residual considered in their relative form in the regression analysis
ROCE’ may be attributable to the fact by dividing them with book value of the capital. In other
words, size factor is controlled while analyzing the data.
that investor assign more importance to
bottom line of the income statement i.e., First Approach: In the first approach, the accounting
net profit, rather than to the operating measure of profitability i.e., ROCE is adjusted with the
profit. overall cost of capital of the company and it is called
‘residual ROCE’. It indicates the excess return earned
on capital employed over the cost of capital. Higher the

24 The Management Accountant l October 2018 www.icmai.in

‘residual ROCE’, more the profitability of the company in relationship between the two variables.
economic terms, as it is taking into account the opportunity
MVA/Capitali= αo+β1EVA/Capital+εi ………….(2)
cost of capital in computation of profitability. Symbolically,
‘residual ROCE’ can be expressed as follows. In the above equation, αo is constant; β1is the coefficient
of EVA/Capital ratio of company ‘i’; and εi is error term.
Residual ROCE=ROCE-COC
The following regression model is constructed to test the Scope of the Study
functional relationship between ‘MVA/Capital Ratio’ and The present study centers around analysis of the
‘residual ROCE’. informational efficiency of the market in terms of reflecting
the economic measures of financial performance on the
MVA/Capitali= αo+β1(ROCE-COC0)i+εi
security prices. The sampling is confined to only positive
…………………(1) EVA companies and cross-sectional data is only used but
not the time series data and panel data.
In the above equation, αo is constant; β1 is coefficient of
‘Residual ROCE’ of company ‘i’; and εi is error term. Limitations of the Study
From the universe of the companies with positive EVA,
Null Hypothesis: The ‘Residual ROCE’ has no impact on 75 companies have been selected randomly. But, due to
MVA/Capital Ratio the presence of outliers in the values of the variables, 16
companies have been excluded. Exclusion of outliers will
Alternative Hypothesis: The ‘Residual ROCE’ has its produce more precise statistical results, but the validity of
impact on MVA/Capital Ratio the results may be undermined due to the loss of information
content belonging to the outlier companies. However, as the
Second Approach: In the second approach, the impact of sample size is still sufficient after excluding outlier values,
EVA on MVA has been analyzed by applying OLS regression. the results of the study can be effectively validated to the
In regression model, both the variables i.e., MVA and EVA companies which are not having abnormal values of the
are taken in their relative form by dividing them with capital. EVA, MVA, ROCE and ‘cost of capital’. Moreover, if panel
The following regression model outlines the functional data is used, the results of analysis may be different.

Results of the Analysis

Chart 1: Scatter Diagram of MVA/ Capital Ratio and EVA/Capital Ratio of Select Companies

The chart 1 shows the pattern of relationship between MVA/Capital Ratio and EVA/Capital Ratio of select companies.

www.icmai.in October 2018 l The Management Accountant 25

 COVER STORY

The X axis shows EVA/Capital Ratio and Y axis shows MVA/Capital Ratio. The negative ratio for only one company was
due to having negative capital(i.e, due to accumulated losses). The scatter diagram manifests the positive association
between EVA and MVA. There are a few extreme values in the group for which MVA/Capital Ratio was remarkably high
with relatively smaller EVA/ capital ratio. It indicates strong investors expectations about the better future prospects
of the company and/or it may be attributed to the presence of intangible asset which were not accounted for by the
conventional accounting system. The MVA/ Capital ratio ranges between 0 to 4 for most of the companies while EVA/
capital ratio ranges between 0 to 0.125.

Chart 2: Cost of Capital (COC) and Return on Capital Employed (ROCE) of the Select Companies

Chart 2 shows the COC and ROCE of the select companies. The difference between COC and ROCE is not similar for all
the select companies. For some companies, the difference is larger and for some companies the difference is smaller. The
companies like Aksharchem (India) Ltd., Patel Engineering Ltd. ITD,. Zuari Agro Chemicals Ltd. etc., experienced larger
deviations between COC and ROCE and the companies liked Balrampur Chini Mills Ltd. Glaxosmithkline Pharmaceuticals
Ltd. and Khaitan (India) Ltd. experienced smaller deviation between COC and ROCE.

Table 1: Regression Analysis Model – I [D.V.=MVA/Capital]

Variable Coefficient Std. Error t-Statistic Prob.

(ROCE-COC) 0.109634 0.034537 3.174362 0.0024

Constant 2.851920 0.376923 7.566325 0.0000

Model Summary

R-squared 0.150225 F-statistic 10.07658

Adjusted R-squared 0.135317 Prob(F-statistic) 0.002422
S.E. of regression 2.430105

Model Diagnosis

Heteroscedasticity Test: Breusch-Pagan-Godfrey

F-statistic 6.599482 Prob. F(5,53) 0.0128

Obs*R-squared 6.122211 Prob. Chi-Square(5) 0.0133

26 The Management Accountant l October 2018 www.icmai.in

 Scaled explained SS 9.917737 Prob. Chi-Square(5) 0.0016

Ramsey RESET Test

Value df Probability
t-statistic 1.453916 56 0.1516
F-statistic 2.113873 (1, 56) 0.1516
Likelihood ratio 2.186111 1 0.1393

Interpretation of Regression Results: Table 1 presents the regression do not produce minimum variance. Hence, in
the results of regression analysis done for model-I as order to ensure that residuals derived from the regression
discussed in the methodology of the study. The results of are not heteroscedastic, ‘Breusch-Pagan-Godfrey’ test has
the analysis reveal that the ‘Residual ROCE’ has significant been applied. The test had a null hypothesis of “residuals
positive impact on MVA/Capital ratio. So, it can be inferred are homoscedastic”. The results of the test ensure that the
that shares of the companies with positive ‘residual ROCE’ residuals are homoscedastic (p>0.01)
are traded at relatively more premium in the market.
R-squared value discloses that 15% of the cross-sectional When regression model is constructed, the model should
variations in MVA/Capital ratio have been explained by be an ideally fit model. The under-fitting or over-fitting of
the contemporaneous changes in ‘Residual ROCE’ while the model will not produce reliable results. One widely
F-statistic discloses significant predictability of the model. used test to ensure the ideal fit of the model is Ramsey’s
RESET Test. It is based on the premise that if the predicted
Interpretation of Model Diagnosis Results: The values of the dependent variable are introduced into the
individual companies in the cross-sectional sample of the regression model in its squared form, it should not resulted
data may be divergent in terms of their size and other in increased R-squared and/or increase in significance of
criteria. It may cause non-constant variance of the error F-statistic. If it is so, then we can infer that the model is
term. It gives rise to heteroscedasticity in the residuals free from specification error. The results of Ramsey RESET
derived from the regression analysis. If heteroscedasticity test ensure that the model is not having specification error
is present in residuals of the regression, the estimators of (p>010).

Table 2: Regression Analysis Model – II [D.V.=MVA/Capital]

Variable Coefficient Std. Error t-Statistic Prob.

EVA/Capital 11.03220 3.938893 2.800837 0.0069

Constant 1.692883 0.329337 5.140269 0.0000
Model Summary
R-squared 0.049690 F-statistic 2.980439
Adjusted R-squared 0.033018 Prob(Wald F-statistic) 0.006948
S.E. of regression 2.569837

Heteroscedasticity Test: Breusch-Pagan-Godfrey

F-statistic 0.387552 Prob. F(5,53) 0.5361

Obs*R-squared 0.398442 Prob. Chi-Square(5) 0.5279
Scaled explained SS 0.941256 Prob. Chi-Square(5) 0.3320

www.icmai.in October 2018 l The Management Accountant 27

 COVER STORY

Ramsey RESET Test

Value df Probability

t-statistic 0.673464 56 0.5034

F-statistic 0.453554 (1, 56) 0.5034

Likelihood ratio 0.475927 1 0.4903

Interpretation of Regression Results: In the regression profits. As EVA is derived as excess of net operating
model, in order to derive minimum variance by the estimators profit over cost of capital, it does not take into account
of the regression, Huber-White covariance method is used the other incomes.
for estimating covariance of the coefficients. The results of
the regression analysis reveal that EVA/Capital Ratio has Scope for Further Research
significant positive impact on MVA/Capital Ratio indicating The results of the present study are posing a challenge
the informational efficiency of the market in terms of to the conventional EVA as a measure of economic profits
reflecting the economic measures of profit on the share and hence, more empirical research has to be done in this
prices. However, the R-squared value is very low implying direction to test the efficacy of EVA vis-à-vis other modern
the explanatory power of the model only upto 5 percent. economic measures of profit. Sector-specific study may also
be helpful in drawing more insightful conclusions.
Interpretation of Model Diagnosis Results: Though, the
value of R-squared is very low, heteroscedasticity test results References
disclose that the residuals are free from heteroscedasticity 1. Anna Kijewska(2016) “Causal analysis of determinants
ensuring that estimators of the model will produce minimum influencing the Economic Value Added (EVA) – a case of Polish
variance. Moreover, Ramsey RESET Test confirms that there entity”, Journal of Economics and Management, Vol. 26 (4) •
is no specification error in the model. 2016.

Final Findings and Conclusions 2. Bhargav Pandya(2017), “Measurement and Investigation of

Economic measures of financial performance are assumed Shareholder Value Creation: Empirical Evidence From India”,
to be superior measures of financial performance, because Pandya, Apeejay-Journal of Management Sciences and
they reflect the economic substance of the activities of Technology, 5 (1), October- 2017
the business. On the flip side, estimating the economic
measures is complicated and involves many assumptions 3. Eswara, Madhavi and Venkat, Prasad Satya(2015), An Empirical
and subjective judgments. Against this backdrop, the Study on Economic Value-Added and Market Value-Added of
present study aims to analyze the informational efficiency Selected Indian FMCG Companies (November 17, 2015). The
of the stock market in terms of reflecting the economic IUP Journal of Accounting Research & Audit Practices, Vol. XIV,
measures of financial performance on the share prices. No. 3, July 2015, pp. 49-65.
Apart from EVA, ‘residual ROCE’ is also considered as an
economic measure of performance. 4. Merugu Venugopal and Dr. M Ravindar Reddy (2016)
“Measuring Shareholders’ Value in Indian Pharmaceutical
The present study unveils an intriguing finding that Companies’: Economic Value Added (EVA) Approach”
‘residual ROCE’ can effectively predict the MVA of the International Journal of Advanced Scientific Research and
shares compared to EVA, as the adjusted R-squared value Management, Vol. 1 Issue 10, Oct 2016, pp16-22.
of the regression is comparatively more for the regression
with ‘residual ROCE’ as a predictor. It may be due to the fact 5. Sakthivel N. (2011) “Value Creation In Indian Pharmaceutical
that ‘residual ROCE’ is a more intuitive and simple economic Industry: A Regression Analysis”, Researchersworld, Vol.- II,
measure compared to EVA. The superior predictability of Issue -1, Jan. 2011.
the ‘residual ROCE’ may also be attributed to the fact that
investors assign more importance to bottom line of the
income statement i.e., Net profit, but not the operating [email protected]

28 The Management Accountant l October 2018 www.icmai.in

COVER STORY

GLOBAL MANAGEMENT
ACCOUNTING RESEARCH -
INDIA VISION

www.icmai.in October 2018 l The Management Accountant 29

 COVER STORY

CMA Ashok Agarwal

Practicing Cost Accountant
Delhi

n effective management Accountants, which represents more reach conclusions or base judgements.
accounting function than 650,000 members and students Being forward and outward-looking,
improves decision-making in in 179 countries. management accounting brings
organisations. This is because people structured solutions to unstructured
in such organisations following an Management Accounting is in problems. It provides people with
effective management accounting reality nothing but a bundle of decision-relevant data, rigorous
function and system, are able to something appearing out of magic and analysis and informed judgement
communicate decision-relevant practices by organizations voluntarily to make better decisions and to
insight and analysis to every decision- to inform their internal decision communicate them with impact. Where
maker in the organisation, while being making, as opposed to financial uncertainty is high, management
alert to the organisation’s social and accounting practices which are seen accounting provides forecasts, which
environmental duties. This is the as mandatory for external reporting can be based on an extensive range
foundation of the four Principles purposes. In actual, considering of information. This might include
which set out the fundamental values, management accounting practices as prior experience and institutional
qualities, norms and features that voluntary vs. mandatory or internal memory that provide opportunities for
represent management accounting. vs. external may remain at the core of continuous improvement.
Quality decision-making has never management vs. financial accounting
been more important – or more categorizations, the distinction is H owe ve r, t h e p ra c t i c e o f
difficult. Competition is relentless, as easily breached. To achieve success, management accounting varies across
new innovations and innovators daily particularly when uncertainty is high, different organisations. The Institute
disrupt the status quo. The volume organisations need to develop an of Cost Accountants of India has
and velocity of unstructured data is effective management accounting developed and published various
increasing in complexity. Impulse is function that complements their Guidelines to help organisations build
taking over insight, as organisations financial accounting system to provide effective management accounting
struggle to keep pace. such analysis. Financial accounting functions, the most important being
information, though essential, does publications by the Cost Accounting
The Global Management Accounting not provide a sufficient knowledge Standards Board and other
Principles were created for this era of base for making decisions about the publicatons related to Cost Accounting
business. Management accounting future. This is because its focus is on Records and Cost Audit. A central
is at the heart of quality decision- past activity. Management accounting role for management accounting
making, because it brings to the fore facilitates integrated thinking so that is to make relevant information
the most relevant information and the full range of decision-relevant available to decision-makers on a
analysis to generate and preserve information is considered. Good timely basis. This Principle therefore
value. The Principles guide best management accounting improves involves the identification, collection,
practice. They were prepared by decision-making because it extracts validation, preparation and storage
the American Institute of CPAs value from information. It places the of information. It requires achieving
(AICPA) and Chartered Institute of best available evidence and forecasted an appropriate balance between:
Management Accountants (CIMA), information at the centre of the (a) past, present and future-related
who in 2017 formed the Association decision-making process, providing information; (b) internal and external
of International Certified Professional more objective insight on which to information; (c) financial and non-

30 The Management Accountant l October 2018 www.icmai.in

financial information. arising out of post-1991 liberalization and growth. Because strategic
and globalization. It served well the issues are increasing in importance
Maintenance of cost records and legal and non-legal requirements to management, cost management
identification of the cost for each of various regulatory authorities, has moved from a traditional role
product/ activities is not a new government agencies, tariff/price of product costing and operational
thing in any company or industry. fixation bodies, research organisations, control to a broader, strategic focus:
These are required for formulating etc. But the fast changing business strategic cost management.
effective pricing policies, long term and economic scenario, both internal
strategies, retain competitiveness in and external challenges, and the need By going through the debate on
the market and avoid unfair play. The for convergence/synchronization inclusion of provision relating to Cost
Cost Accounting Records generates of global accounting practices Accounting Records and Cost Audit,
a system so that such records are require a change in the performance it is confirmed that the Lok Sabha
maintained in systematic and uniform management systems including the advocated Cost Accounting Records
basis among various companies of cost management and reporting and Cost Audit, way back in 1965
an industry. The cost calculated by framework. particularly on following grounds:
different organizations, otherwise
may not be comparable due to usage Cost accounting, through the 1. “There is so much waste.. We must
of difference methods, procedures determination and allocation of know the break-up of the cost.
and practices adopted by various costs to various products, provides a There is so much that we can save”
accountants. Cost records are helpful valuable service to the managements (Page 1045 Lok-Sabha debates
in pricing products and services, of companies in cost analysis and dated August 19, 1965);
performance appraisal, segmental control. This way, it can help improve
reporting etc. efficiency in the use of materials, 2. “Only if there is cost audit, cost
labour and plant, maximize production accounting will be in a correct
Earlier, Govt of India introduced and increase profitability. At the same position” (Page 1045 Lok-Sabha
Sections 209(1) (d) on Cost Accounting time, cost analysis furnishes useful debates dated August 19, 1965);
Records and Section 233 B on Cost information in respect of important
Audit in the Companies Act 1956. matters such as gross margin, 3. “There is real fear that the trade
Presently, it is included as Section 148 differential costs, replacement costs, secrets will leak out..but.. that
in the Companies Act 2013. Section etc. Cost analyses are useful to the should not be given as a reason
209(1) (d) of the Companies Act, 1956, Regulators of public utilities and for not having cost accounting
incorporated in 1965, is the backbone provide a basis for comparing claims and cost audit” (Page 1047, Lok-
of cost accounting in the Indian and assessing the validity of issues Sabha debates, August 19, 1965);
corporate sector. This framework put arising out of international trade.
to practice, through promulgation of In 1965, a lot more was advocated
Cost Accounting Records Rules by the Cost accounting is an integral in favour of section 233B. Perhaps the
Government, has inculcated a sense part of the management process. real advantage of Cost Audit could not
of cost consciousness in large number It serves as an aid or a tool to be seen as the growth in Section 233B
of industries/companies. Presently, the management in respect of its has been extremely slow. In a span
the prescription of cost accounting functions relating to cost control and of nearly 50 years of its existance. In
records rules has been extended to cost analysis. The growing pressures today’s era, when “violation of law” is
companies engaged in production, of global competition, technological common, commitments to investors
processing manufacturing and innovations, and volatility in exchange are not cared, corporate sickness is
mining activities. Further, the Central rate and input prices and change in in alarming stage, it becomes more
Government has also prescribed business processes have made cost necessary to see that an external
uniform cost accounting records rules management much more critical and tool like Cost Audit (which better be
in place of product-wise records rules dynamic than ever before. Cost is a described as corporate efficiency
prescribed earlier. The mechanism strategic issue. Often, the very business audit) is available to measure the
of maintenance of cost records, to a model itself may need to change to corporate success.
very large extent, has helped industry ensure that the organisation remains
to face the fierce competitive forces competitive both for sustenance Following are excerpts of

www.icmai.in October 2018 l The Management Accountant 31

 COVER STORY

debate on Companies (Second entire field of production, but only accountants are very necessary.
Amendment) Bill debated in the specified things, after some time
Lok Sabha on August 18, 19 and Government may find it necessary I remember also the occasion
26, 1965 to enlarge the scope of this.” Page when we were debating about one
Lok Sabha debate - Pages 820 to 1046, Lok-Sabha debates, August of the public sector organisations.
840 of August 18, 1965; Pages 1003 19, 1965. At that time, one of the Ministers
to 1055 of August 19, 1965; and Pages was very insistent and said that
2071 to 2162 of August 26, 1965. 5: “There is real fear that the trade he found constantly that the
secrets will leak out, and Shri difference between the project
1: “Next is clause 23 which deals with Dandekar has given expression cost in plan as it was originally
cost accounting and cost audit. As to them. Government must see envisaged and the actual financial
everybody knows, it is a new thing. to it that it does not happen. In position which was later on
But it is a necessary thing. My first the set up which we now have revealed, had increased to such
suggestion is that the Government there is so much of competition an extent was so big that it has
itself should take more seriously in production and if the details become very necessary for us to
about cost accounting and cost of costing is known to the rival have a proper cost accountancy.”
audit in their own establishments. parties, it will put the party in a Page 2130, Lok-Sabha debates,
There is so much waste. Even the very difficult position. So, some August 26, 1965.
reports of the Public Accounts protection is necessary. But, I will
Committee have drawn our again repeat, that that should 7: “Now, if we allow sufficient
attention to that. We must know not be given as a reason for not scope, and create opportunities
the break-up of the cost. There having cost accounting and cost for cost accountants, they will
is so much that we can save. All audit. They are necessary in order also after a short period of time,
these things are necessary to be to scoteh the malpractices in audit increase in numbers and we will
known. The Government must and accounting. Shri Dandeker have a number of practicing cost
first of all find ways and means has unwittingly remarked that accountants and their volume of
to have cost audit and not only it will create more confusion in work and their numbers will grow
cost accounting. Only if there is figures that will come to light. It appreciably in no time.” Pages
cost audit, cost accounting will be will give a true picture of the entire 2130-2131, Lok-Sabha debates,
in a correct position.” Page 1045 business, instead of the one-sided August 26, 1965.
Lok-Sabha debates dated August picture of the financial position
19, 1965. presented by the company.” Page The present competitive economic
1047, Lok-Sabha debates, August environment has made all the
2: “If cost audit is introduced, I am 19, 1965. organizations more conscious
quite sure that a large number of about the need to bring efficiency
young men who are now going for 6: “Shri Saraf has very clearly pointed and economy in their operations.
chartered accountancy will turn out that cost accountants are “Cost Leadership” and “Total Cost
their mind to cost accountancy very, very necessary, not only from Management” is the present day
and they will come up as Cost the point of view of increasing the mantra. Cost control and cost
Accountants.” Page 1046, Lok- efficiency of an organisation, but reduction is an on-going exercise for
Sabha debates, August 19, 1965. also, I think, from our point of the management to gain competitive
view, to really find out what is the edge over others and for survival.
3: “Cost Accounting is the crux of cost structure, and what exactly The existing provisions of cost
the matter as far as trade secret is the pricing policy. In a situation accounting under the Companies Act,
is concerned. So perturbation of where many of our organisations 2013 should make it more beneficial
the management and those who are going in for modernisation to various regulators, government
are engaged in production is quite and rationalisation, it is necessary departments/bodies to protect the
natural.” Page 1046, Lok-Sabha to find out whether it is really interest of consumers and investors
debates, August 19, 1965. necessary and whether it will be and to protect the industry from
really paying. From these points of unfair trade practices (like anti-
4: “Although this does not cover the view, it is quite obvious that cost dumping, subsidies & counter-veiling

32 The Management Accountant l October 2018 www.icmai.in

measure, cartels, etc.) under WTO global competitive environment; Accountant (CGMA) website and various
agreements. In addition, in the present and to improve sustainability. articles and other publications available
economy all businesses would like to Cost management requires both at the website; publications on the Global
be competitive, reduce cost and strive material cost and cycle time costs Management Accounting Principles.
for growth and improve their share in to be benchmarked, with close
the market. The objectives will have online monitoring; business process 3. http://icmai.in/CASB/index.php
to synchronize with the cost base re-engineering; fixing targets and not
strategies. budgets; management by objectives; 4. Institute of Cost Accountants of India
control by self-assessment and fixing website, the Cost Accounting Standards
Cost accounting has not remained accountability. Board Auditing and various publications
static to be a mere system of “cost available there.
measurement” or “cost determination” Reference
– it has turned more and more towards 1 . h tt p s : / / w w w . c g m a o r g / 5. Lok Sabha & Rajya Sabha debates
“cost management”. Cost management r e s o u r c e s / r e p o r t s /
is the use of cost information to globalmanagementaccountingprinciples.
improve efficiency, performance and html
profitability of an organization; to [email protected]
meet the requirements of the present 2. Chartered Global Management

www.icmai.in October 2018 l The Management Accountant 33

COVER STORY

VALUE INNOVATION –
A NEW DIMENSION TO
MANAGEMENT ACCOUNTING

The meaning of Value, according to a dictionary is “….the regard that

something is held to deserve, the importance, worth, or usefulness of
something..” Similarly, Innovation means “A new method, idea, product
etc. Therefore, going by the dictionary, we can say that value innovation is
an idea, a new method or a product / service that is of immense importance
and usefulness to the buyer. But merely going by the lexicon can never give
us a complete purport of the term ‘Value Innovation.’ It can only further
the long-held belief that value is all important but comes at a cost. To
dispel this notion, we need to look at value not just from buyer’s point of
view, but also from the organization’s viewpoint.

34 The Management Accountant l October 2018 www.icmai.in

 CMA Udandrao Lakshmana Rao Rettiganti Ramachandra Prasad
Cost Accountant and Management Founder & CEO,
Consultant RR Learning Solutions
Visakhapatnam Chennai

alue Innovation is often confused with value Value Innovation means achieving differentiation in
improvement. A little above or below the normal product / service at a lower cost that ensures sustainable
is considered as innovation, while at best, it is just profits to the organization and creates an enduring value to
improvement. “New Improved Rin” is still a detergent the buyer. The buyer gets a value if he feels that he is getting
bar but probably with an added fragrance, or increased more than what he pays for and the organization gets a
weight or a new advertising claim. It is generally understood value if it can get more than what it costs them to produce.
that anything different is an innovation. However, it is not. Besides, this dynamic process gives an organization a
sustainable competitive advantage.
W.Chan Kim and Renee Maugorgne in their recent pat
breaking book “Blue Ocean Strategy” have defined Value Management Accounting and Value Innovation
Innovation as the goal towards creating a Blue Ocean It is often said, “Cost is a fact and price is a policy”.
Strategy. It aims to create a ‘giant leap in buyer value’ While cost is one of the key factors in pricing, at the same
time, in the given competitive scenario, pricing policy
This article borrows tools from Blue Ocean Strategy should be within the framework of consumer acceptance
that the authors have described in their iconic book. It vis a vis competition and alternative products / services
juxtaposes these tools that the book introduces with the that is under buyer’s consideration. Price must therefore,
general working of Cost and Management Accountant contribute to value, instead of merely reflecting perceived
(CMA) and finance professionals. It also suggests how value.
these strategic tools that help to create new markets can
also be used by individual professional to reinvent and Of late, a gap is widening between what is management
reorient themselves. accountant’s report and stakeholders’ expectations. This
is essentially because of change in information needs.
What is Value Innovation? Employees need more details about how they can contribute
It is believed that companies can either create greater to better financials. As employees are the most important
value to the customer at a higher price point or cerate resource for any organization, their sense of ownership and
reasonable or lower value by offering at a lower price. responsibility is vital to the health of an organization.
Which means it is either low price or differentiation, a trade-
off. However, Value Innovation is a simultaneous pursuit of Therefore, reporting trends have shifted towards analytics
low price (Value) and Differentiation (Innovation). that support decision that helps in creating a leap in
buyer value. This is the emerging trend in Management
Accounting.

Strategy Tool to Create Value Innovation

The one tool that Blue Ocean Strategy uses to drive
home that concept of Value Innovation is the ‘4-Action
Framework’. This tool helps to pay close attention to both
costs and differentiation simultaneously. Application of
these 4 actions creates a whole new value curve. We will be
using this tool to create a value innovation in the working of
Management Accountants that impacts the most important

www.icmai.in October 2018 l The Management Accountant 35

 COVER STORY

stakeholder (the employee). In the past people were an people in any organization do not understand the financial
item of Profit & Loss Account as ‘labour’ and were driver of information (even if available) and ts impact on decisions.
costs. It is time that labour is seen as ‘people’ and seen as
driver of profit. Therefore, it is only in fitness of things the The authors of this article distinctly remember a incident
we look value innovation with people. from their experience. A Senior Vie President of a large
confectionary company was planning an annual sales
How to Bring Value Innovation with People? conference and had decided to make a big noise at the
event to impress the management. At the event, he had
decided to present a cheque for Rs. One Crore (a big
amount in the year 1993) to the management. This was the
receivables over the period. The Vice President presented
the cheque amidst loud music flash bulbs and applause.
He believed that he had made the desired impression. The
Vice President was sacked soon after the sales conference.
He had no idea that the deliberate delay in collecting the
receivables has huge opportunity cost to the company
besides setting a bad habit. Those were the days when
interest rates were significantly high. Raising financial
awareness appears to be a simple and done thing but if
done with purpose it leads ownership.
The first two factors, Eliminate and Reduce focusses on
the cost structure (Value) and the other two, Raise and Create: Factors that should be created that the industry
Create focus on differentiation (Innovation). All that the has never offered thus far.
industry or an organization does which does not create
value to the buyer should be eliminate or reduced. This Creating a sense of ownership in the organization is
will reduce costs without altering the existing value to the not just about ESOPS, ownership is about responsibility,
buyer. All that can add value to the buyer should be raised commitment and accountability. It s important to create
or created. This refocuses the cost structure towards value and implement these business literacy programs across
creation. (Illustration adapted from “Blue Ocean Strategy” the organization. This is not just sharing the quarterly
by W.Chan Kim & Renee Mauborge) results on the company notice board. It is about making
people understand how revenues are costs translate into
Another way of looking at Value Innovation through this profits. This makes people financially literate. This has a
4-action framework is the lens of ‘efficiency vs effectiveness’ huge impact on the organizations pursuit towards Value
While efficiency is important, it is not useful without being Innovation. Ownership given people a completely different
effective. However, if efficiency is embedded in effectiveness view point and helps see things completely different. They
then Value Innovation can be achieved. In other words, it is just don’t do their job they define their role!
focussing simultaneously on both the denominator (Cost)
and numerator (the revenue or the differentiation). Southwest Airlines had a program. Once a flight
attendant was cleaning the trash from the airline and two
Value Innovation – A New Dimension to Management things struck her when she noticed company log on the
Accounting used cups and trash bag. One, the passengers knew exactly
So, how can Management Accounting Professional which airline they were flying and second, used cups were
leverage this tool? Let us look at each of the elements of going to be trashed finally. She wrote to the President
4-action framework in this context. of the airline asking how much it costs to print the logo
on cups. Collen Barett, President, wrote back saying that
Raise: Factors that should be raised well above the the flight attendant just saved the company $3000,000
industry standard annually. The logos were removed from the cups and trash
bags. No value was lost, and the money saved adds to the
Management Accounting professionals can raise the bottom line. If employees know where money can be saved,
financial awareness right across the organization. While it can be done without sacrificing value. This is financial
this is simple statement, it carries a lot of depth. Most literacy that counts!

36 The Management Accountant l October 2018 www.icmai.in

 Most financial statements are generally couched in competitors giving out information. Much information
jargons. Much of these may not make sense to the last flows from vendors and bankers.
man in the organization. To create the sense of ownership,
it is important to get creative and use only a high school If there are one set of people who need to have financial
language that makes sense to the least educated in the information in real time, it is the employees. But if
organization. It should also be illustrative and if it does secrecy is an overwhelming concern, technology such
not make sence, the information will not be acted upon. as blockchain (a sort of trusted network that improves
transparency and reduces costs and yet retains security)
Imagine your truck driver who knows how much he can gives a great opportunity to share information only with
save by driving with a keen eye on logistics / fuel costs and designated people without allowing anyone to tamper with
these costs saved does directly to the bottom line. Or think the information. It is great tool to share information and
of a salesman who understands the cost structure he can create a great value.
optimize his travel plan in such a way that the company can
save costs. Financial literacy does create ownership and Reduce: All the factors that can be reduced well below
ownership is a winning attitude. the industry standards has to be reduced.

Let us look at another example in Value Innovation. Creation of business literacy reduces hoarding of financial
Granite Rock, a 100 years company in the United States information while it is important to have professional to
sells crushed granite, asphalt and gravel to construction deal the critical positions to generate and disseminate
industry. Even though the product is a commodity, information. It is also equally important to reduce the
the company decided to benchmark itself in terms of centralization of such functions. It is often said that
performance with an upscale branded departmental store marketing is far too important to be left to marketing
called Nordstrom, absolutely no comparison but Granite professionals. Similar sentiments can be expressed with
Rock decided to do it. regards to other functions too. Reducing concentration
of information leads to unprecedented empowerment
In a daring move, the company decided to let the leading to strong feeling of ownership. Democratizing
customer decide the price of the product. In the invoice financial information adds a completely new dimension to
that the company raises, it clearly mentions that if the Management Accounting!
customer is not satisfied with any of the items of the
invoice, he simply scratch it off and write a note on why Epilogue:
they struck it off and pay the for rest of the items of the The 4-action framework can be used in almost any sphere
invoice. By doing so Granite Rock has put the power in the with a bit of creativity and understanding of the concept
hands of the customer. It is not refund or discount, what eliminating or reducing concentration of information and
the company did was to get real on customer feedback. It raising and creating various ways to democratize information
is a feedback that is at once real and actionable. There is sharing has huge potential to create unprecedented value.
no denial and defence to get the feedback. Granite Rock It is important to align the whole organization towards this
created moments of truth that they must face squarely. Value Innovation which gives an organization a sustainable
competitive advantage. As Management Accountants are
The result, customers loved it and continued to be loyal to warehouse of information they can facilitate ‘supply and
Granite Rock. The company charges a 6% premium and has apply’ of this information for engaging and empowering
a revenue before taxes of roughly 10% which is comparable employees towards Value Innovation and profitability. In
to technology giants in those days, a true Value Innovation. this digital age, information is no longer just knowledge, it
now become way to generate and sustain economic value.
Eliminate: The factors that industry takes for granted Value Innovation contains within itself focus on profitability.
that can be eliminated It also helps leverage the most important resource any
business can have. Real time information can enhance
The one main obstacle to sharing financial information employee behaviour and create great value to people and
could be security factor. This feeling of security has to be organization. It breeds accountability and responsibility,
eliminated, if one goes to the financial press, one can get the foundation on which effective ownership rests.
all the information on the industry and of any organization.
Social media like LinkedIn often sees employees and It is the time to reorient and add a new dimension to the

www.icmai.in October 2018 l The Management Accountant 37

 COVER STORY

profession of Management Accounting! 5. Nuts! Southwest Airlines’ Crazy Recipe for Business
and Personal Success by Kevin and Jackie Freiberg,
References: Broadway Books 1996
1. Author RR Prasad ([email protected]) has a corporate
experience of over 30 years in strategic marketing, 6. Blue Ocean Strategy by W. Chan Kim and Renee
change management, branding, skill development and Mauborgne, Harvard Business Review Press, 2015.
management consultancy.
7. Guts! - Companies That Blow the Doors off Business-
2. Author Lakshmana Rao ([email protected]) has As-Usual by Kevin and Jackie Freiberg, published by
over 24 years of corporate experience as Cost and Doubleday a division of Random House, January 2004.
Management Accountant, Business Analyst, Controller,
SAP FICO Consultant and CFO of Six Sigma Projects. 8. https://grosum.com/blog/performance-management-
responsibility/
3. Turning Goals into Results the Power of Catalytic
Mechanisms by Jim Collins, Harvard Business Review,
July-August 1999

4. http://blog.rrprasad.com/innovation-fix-it-when-it- [email protected]
aint-broke/
[email protected]

Obituary

With profound grief, this is to inform about the sad demise of

CMA V.R. Iyer, Former President of the Institute (1994-95) on Sunday,
16th September, 2018 at Bengaluru. The Council of the Institute in its
meeting held on 20/09/2018 expressed deepest condolences to the
bereaved family.

38 The Management Accountant l October 2018 www.icmai.in

COVER STORY
QUALITY

COST
STRATEGIC DIMENSION
OF COST OF
QUALITY

Vitin Kumar
Dy. Engineer
Bharat Heavy Electricals Limited
Noida

www.icmai.in October 2018 l The Management Accountant 39

 COVER STORY

ou might have heardabout instances where some ofthe to meet customer needs and statutory requirements,
renowned Car manufactures, laptop manufacturers, but also to do so at the lowest possible cost. This means
mobile manufacturers etc. recalled their products of understanding, measuring and reporting on Cost of Quality,
specified model, manufactured in specified period which accounts for a considerableportion(ranging 10%
for removal deficiencies. Product recalls come with a cost - 45% of sales revenues depending upon industry type)
and sometimes the impact of one such recall reflects on the of acompany’s total costs. Cost of quality essentially to
stock exchanges that erode shareholder’s wealth.Service be managed to improve the bottom lineof performance in
providers incur huge expenditure on account of paying highly competitive market. Cost of quality is also termed as
claims to aggrieved parties for poor services rendered tool of performance measurement. Thus, the effect is to be
or breach of contracts. Sometimes judicial institutions given to establish a functional relationship among strategy,
imposes penalties on the service providers for poor services productivity, performance, efficacy and the cost of quality.
rendered.In fact, poor quality have a Cost. This is not only Wording differently, cost of quality is integral to strategy.
the cost of replacing / improving the defective parts, but
potentially erode the prospective sale revenues anddilute Cost of quality:
the brand image. Poor quality cost,can be avoided by Cost of Quality is the sum of expenses incurred by an
placing a robust quality systems, which itself a cost. Indeed, entity in achievement and in maintenance of good quality
cost is key of success of any economic activity and quality as well as in managing poor quality in its entire operational
is soul of product. Studies reveals that, cost of poor quality dynamics with an aim of attaining the highest level of
is much higher than the cost of good quality.This is because customer satisfaction.
of associated cost of non-quality increases exponentially
as products move from manufacturing to distribution The cost of poor quality is the value wasted when work
channel and then ultimately to the end customer.Therefore, fails to meet customer requirements, usually calculated by
every organization must consider the costs associated quantifying the cost of correcting, reworking, scrapping,
with achieving quality, since their objective is not only warranties etc. i.e. Failure costs.

Components of Quality Costs:

Major heads Minor heads Description Timing Areas
COST OF GOOD Prevention cost • Design and implementa- It is an invest- • Product design
QUALITY tion of quality systems ment in organi- • Process design/ improvement
sation as preven- • Risk assessment
• Monitoring and con- tive cost. • Audits
trolling activities of sys- • Supply chain data manage-
tems. Cost incur before ment
real operation • Documentation
Appraisal cost • Measuring and inspec- During operation • Process control
tion of quality activities • Sampling
for ensuring confor- • Product testing
mance of quality • Clearance / release

COST OF POOR Internal failure • Defect discovered in qual- Before delivery to • Rework
QUALITY cost ity systems customers • Repairs
• Scarps
• Remedy or rectification
• Defect investigation efforts
cost
• Process time lost
• storage
External failure • Defects discovered by After custom- • Complaints
cost customer causes to dis- er received the • Repairing services
satisfaction to him products or ser-
• Contractual penalties
• Discover by company it- vices
self at later stage • Statutory penalties
• Logistics

40 The Management Accountant l October 2018 www.icmai.in

How to attempt to embrace cost of quality into l Secondary objective: Monitor impact of prevention
strategy? costs on the total cost of quality to avoid falling into
Notably, appraisal cost and internal failures costs are Over-quality.
avoidable. Investments in preventive activities offer the best
return. A general rule of thumb to remember is, 1/10/100, l Use bench mark
meaning that;
l Use cross industry data
When compared to prevention activities costing= 1,
l Define Key performance indicators
Poor quality cost is:
l Identify the Cost of Quality data (use industry 4.0
l 10 times when identified during appraisal activities and environment as enabler, discussed in subsequent part
internal failure of this paper)

And; l Select Cost of Quality tools

l 100 (and more) times costlier when identified after the l Design a robust organization
product has shipped.
l Define a task force
Therefore, Investment in prevention activities will reduce
appraisal costs and finally reduce failure costs. This gives Industry 4.0 environment as enabler:
insight into the type of cost to incur to create the value. Industry 4.0 is commonly referred to as the fourth
industrial revolution, a name given to the current trend
Establishment of cost of quality model: of automation and data exchange in manufacturing
The real challenge and opportunity before professionals technologies. It includes cyber-physical systems, internet,
responsible for right costing is to establish a framework to cloud computing and cognitive computing. The technologies
achieve the quality at lowest possible cost. To be successful have the potential to bring unprecedented clarity around
modelling, themanagement Accountant while attempting for, an entity true total cost of quality—a concept that goes
first convertthese quality related activities into cost related beyond the cost of poor quality and incorporates the
activities, so as they got dressed withbeauty of monitory costs associated with good quality as well. Further,
form for attracting the top management attention and technologies can help companies transition into a world
involvement. Establishing a quality costing model makes it where high-quality products are delivered in first try,
possible to express quality-related activities as cost-related product and service failures become virtually non-existent.
activities. Second aim is talking in the common language of Key to optimizing total Cost of Quality is in driving a shift
the facility management or department to promote quality to prevention; i.e., changing the ratio of prevention over
as an objective business parameter to influence strategic appraisal, and delivering a far more proactive quality culture
and business decisions.Another aim is to raise awareness and system.
among people focused on quality (e.g. industrial, sales
and service departments) about these economic aspects. Industry 4.0 promises to completely digitize and integrate
Engagement and awareness of quality costing shall be big processes vertically across and beyond organization and
deal for success of model. place customer at the centre in value chain and utilize
data from the field to create a continuous feedback and
A sample quality model essentially embraces the improvement loop. Data from smart sensors, mobile
following; devices, and wearables will be channelled through cloud
and IT platforms directly into quality management system.
l Identify management and business needs This allow to see the previously known or unknown cost of
quality for elimination of hidden costs.Thrust of model is
l Define the Cost of Quality strategy to shift costs to prevention activities and avoid producing
defective products in the first place and a reduction in the
l Prime objective: Balance prevention and appraisal costs cost of appraisal activities as well as the costs of internal
and external failures. To take advantage of this technology,

www.icmai.in October 2018 l The Management Accountant 41

 COVER STORY

quality leaders should start with a thorough and earnest management

assessment of their current state and desired future state.
By identifying greatest challenges and opportunities, l Identify the need for action to decrease costs of poor
quality leaders and management accountants can carefully quality
plan industry 4.0 investments and forge a path toward
sustainability. The cost information viz. cost records and l Improve managerial planning, control and decision-
cost audit reports gives the clear deep insight in cost of making
quality and areas of process improvement. Thus quality
models may fetch seamless flow of this information in As operational/ process improvement view point:
journey of value creation. l Have insight

Avenues for CMA’s: l Monitor activities

As a value creator, management accountants have
to first attempt for understanding and analyse entity l Identify, prioritize ad select projects
business environment to convert attributes of quality
into monitory term. Having insights of finance, statutory, l Provide financial benefits of process improvement
strategy, operation, processes, management etc., place
him in a better position to initiate improvement process. Summing up:
For successful improvement process, following points to be Pursuit of quality goes beyond simply eliminating defects.
addressed: Value for money is a key component of quality in any
industry and is a “legitimate” quality measure. Quality has
As strategyview point: different definitions and dimensions. To adopt a strategy for
l Persuade top management to initiate improvement value creation,the Cost of quality is to be embedded in the
projects (top management is more influenced by data Business policies and strategies emanating from the core
expressed in monetary terms rather than technical data business purpose of the organization. For this to happen,
such as defect rates) these must align with each businesses internal values and
must provide clear business benefits.
l Incorporate all the separate quality activities into an
overarching quality system and monitor performance
across the organization

l Provide a communicating bridge between line and top [email protected]

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42 The Management Accountant l October 2018 www.icmai.in

 36 JULY 2018 50
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www.icmai.in October 2018 l The Management Accountant 43

MANAGEMENT ACCOUNTING
MANAGEMENT ACCOUNTANTS’
UNDERSTANDING
OF CULTURAL DIFFERENCES

CMA Wooseok Suh

Plant Controller
Gates Corporation
Nara, Japan

n the era of globalization, many management anthropologists, sociologists and psychologists. Drawing on
accountants,employed by multinational companies, four well-known taxonomies of culture in these disciplines,
have to manage worldwide operations spanning different let’s consider what they imply to management accountants.
countries. Accounting information prepared and applied
in such circumstances thus involves diverse stakeholders High-context and low-context cultures
who have different cultural backgrounds. Some managers Anthropologist Edward T. Hall’s context-based
assume, based on their recognition of cultural differences, concept helps us to understand the effect of culture on
that accounting information prepared under the influence communication. It demonstrates the significant extent
of a certain culture might be less accurate, ordelivered to which communicators rely on factors extraneous
with a lesser commitment to deadline,thancorresponding to specifically verbal means to deliver their messages.
information prepared in more advanced countries. This is a Management accounting information communication
typical example of cultural bias that should be eliminated between employees from two contrasting cultures
through the promotion and inculcation of a proper encounters the same issues.
understanding of cultural differences.
Table 1: Hall’s high-context and low-context cultures
The effect of culture on management accounting becomes
noticeable in the process of the handling of management High-context cultures Low-context cultures
accounting information. For example, the same information Indirect messages with covert Overt, simple and direct
can convey different meanings to individuals in different and implicit meanings messages
cultural contexts, which meanings, in turn, would tend to
elicit distinctive responses. Then, how should management High use of non-verbal Low use of non-verbal
communication communication
accountants understand cultural differences in performing
their duties? Strong distinction between Flexible and open group-
in-group and out-group ing patterns
Understanding cultural differences is complex and Strong interpersonal bonds Weak interpersonal bonds
challenging. Unfortunately, culturelacks a consensus High-commitment to Low-commitment to
definition, and in fact, it is still a contested subject. relationships relationships
Therefore, rather than look to management accounting Open and flexible time Highly organized time
itself for a working definition of culture, it might be
more advantageous to consult the research findings of Source: Hall, E. (1976).Beyond culture.New York: Doubleday

44 The Management Accountant l October 2018 www.icmai.in

High-context cultures femininity. A fifth dimension, long-term versus short-term
In high-context cultures, people develop close connections orientation, was developed from a subsequent survey on
with others based on long-term relationships and a myriad Chinesevalues with Michael H. Bond. Hofstede’s cultural
of unwritten rules. Much is implicit and taken for granted. dimensions, importantly, help us to predict how cultural
And ascomprehension is more internalized, non-verbal differences can affect the usefulness of management
communication,with less written information, prevails.A accounting across countries.
good example of a high-context culture is a family. Family
members know, for example, where nail clippers are without Table 2: Hofstede’s cultural dimensions
asking each other, but non-family members probably would
Dimension Definition
not locate them on their first try. Most Asian countries are
categorized as high-context cultures. Power distance The extent to which members expect and
accept that power in
organizations is distributed unequally
Low-context cultures
Some people value explicit information such as rules that Individualism/ The extent to which individuals are inte-
Collectivism grated into groups
are direct and logical. Such communication also is fact- and
action-oriented. Detailed instructions and contracts prevail, Uncertainty The degree of tolerance for uncertainty
avoidance and ambiguity in a society
allowing for the transferability of knowledge. Therefore, the
likelihood of miscommunication is low in these cultures, Masculinity/ The extent to which a degree of differen-
even without contextual understanding.Most Western Femininity tiation between gender roles
exists in a society
countries are low-context cultures.
Long-term The fostering of virtues oriented towards
Implications for management accountants orientation/ future rewards, perseverance and thrift
Quantitative reports prepared in high-context cultures Short-term The fostering of virtues related to the
might not effectively reflect prevailing indirectly conveyed orientation past and present, based on respect for tra-
and intuitive information. For example, improved financial dition, preservation of ‘face’ and fulfilling
social obligations
results in a certain area could be the consequences of
other unreported activities such as individual’s sacrifices Source: Hofstede, G. (1980). Culture’s Consequences, Sage
or internal resource transfers. If such reports are made the Publications Hofstede, G. & Bond, M. H. (1988). “The Confucius
basis of decision-making, unexpected results could occur. Connection: From Cultural Roots to Economic Growth”,
Therefore, the situations and backgroundsin which reports Organizational Dynamics, 16,4; 5-21
have been prepared should be understood in order to grasp
the implicit meanings.Quantitative reports prepared in low-
context cultures, contrastingly, might better reflect whole
situations, including non-financial information, due to
the non-reliance onnon-explicit high-context information.
Direct and open communication in organizations even
will help to create a transparent environment in which all
members can share the same understanding of quantified
objectives prepared by management accountants. Thus,in
those cultures, both report preparers and users can better
control relevant situations through deliberate detection of
causal relationships and specific accounting measures.

Hofstede’s cultural dimensions

A theoretical taxonomy of national culture was
conceptualized by social psychologist Geert Hofstede.
Through a survey of IBM employees worldwide, he
developed four dimensions of culture, thereby revealing
substantial similarities/dissimilarities in work-related values
across countries: power distance, individualism versus
collectivism, uncertainty avoidance, and masculinity versus

www.icmai.in October 2018 l The Management Accountant 45

 MANAGEMENT ACCOUNTING

Power distance (PD) views and ideas;they simply prefer to accept top-down
In large-PD countries such as South American, Asian and decisions rather than to express conflicting opinions about
Arab nations, people more easily accept power inequalities centralized authority. Therefore, employees’ performance
and centralized power. By contrast, small-PD countries such evaluation needs to focus on the business processes
as Anglo-American and Scandinavian nations tend not to rather than on the financial results of top-down decisions.
welcome centralized power in organizations. A small PD, meanwhile, favors a bottom-up budgetary
process where employees can participate in the setting of
Individualism versus collectivism (IDV)
goals instead of having them imposed from above. As such,
In individualistic countries, individuals maintain loose enhanced goal-orientationcan be effectively promoted and
relationships with each other and tend to act independently achieved in small-PD countries. In addition, employees
to their own best interest. In collectivistic countries, people who participate in decision-making processes that affect
regard themselves as part of a group,correspondingly themselves and their organizations can be evaluated by
emphasizing group interest over the personal. Anglo- the outcomes of the decisions. Management accountants
American and Scandinavian countries are relatively high- should recognize the organization’s PD propensity to play
IDV nations (more individualistic), while Asian countries an influential role in budgetary and performance-review
show relatively low scores in IDV (more collectivistic). processes.
Uncertainty avoidance (UA) Individualism versus collectivism (IDV)
People in strong-UA societies show little tolerance for Employees in high-IDV cultures tend to have a strong
uncertainty. They seek to minimize the discomfort arising desire to showcase personal performance, being relatively
from uncertainty and ambiguity by instituting laws, rules indifferent to team or group performance. Therefore, the
and regulations. In weak-UA societies, people more easily individual key performance indicators (KPIs) should be well
accept uncertainty,showing little concern about it. Latin aligned with organizational goals so as not to deteriorate
countries including South European and certain Asian the organizational atmosphere. Low-IDV cultures, on the
nations are cultures with strong UA, whereas Anglo- other hand, tend to prefer group goals and assignments
American countries show weak UA. instead of being praised or punished individually.Thus,
presenting opportunities to serve the group rather than
Masculinity versus femininity (MAS)
focus on individual KPIs would be a more appropriate
Countries with strong masculine elements have distinct personnel-management approach in collectivistic cultures.
gender roles, valuing assertiveness, competitiveness, Management accountants will be able, through a proper
and material success, among other like things. In understanding of IDV tendencies, to design and implement
feminine societies, supportiveness and quality of life are effective KPIs aiming for goal congruence between
stressed,along with less-differentiated roles between individuals and the organization.
genders. Japan ranks as the most masculine society, while
Uncertainty avoidance (UA)
Scandinavian countries show weak MAS.
In strong-UA cultures, the forecast time frame in which
Long-term versus short-term orientation (LTO)
to secure the anticipated results is relatively short.
In high-LTO countries, people place more value on Additionally, there might be large numbers of spreadsheet-
future-oriented thought and behavior.Accordingly, values based internal reports, and new reporting templates would
such as persistence and thrift are highly appreciated. be continuously created and implemented to measure all
Low-LTO countries relatively prefer immediate results and aspects of a company’s operations. Reports in weak-UA
gratification. Chinese-culture-based countries have high cultures tend to be concise so as to highlight key points,
LTO scores, whereas Anglo-American countries show low relying predominantly on graphic illustrations and verbal
LTO. comments. Armed with a thorough understanding of the
different UA influences, management accountants can
Implications for management accountants identify and develop appropriate and specific skills required
for their organizations.
Power distance (PD)
Masculinity versus femininity (MAS)
A large PD is more likely to conform to top-down budget-
setting and performance-review processes. It does not Accounting information in strong-MAS cultures is not
necessarily mean that employees do not have their own likely to be valued by non-accounting employees such as

46 The Management Accountant l October 2018 www.icmai.in

self-assertive people on the shop floor. They believe that Individualism Collectivism
they are best in their respective fields and that white- People act like individualists Individuals view themselves
collar accountants who do not work on the shop floor to maximize their personal as part of the social group
could hardly understand what they are doing. Therefore, benefits, showing less concern
for other people or their
when management accountants request production collectives
information or explanation on manufacturing variances,
Relationships therein are Members are willing to
they often receive a cold response. In strong-MAS cultures,
constantly changing behave according to group
management accountants had better be located physically based on individual interests norms and obligations,and
near the production site to close the psychological distance and the try to maintain good and
between accounting and production. On the other hand, in surrounding environment close relationships
weak-MAS cultures, open communication and cooperation Source: Triandis, H. C. (1995). Individualism and
prevail across departments, allowing accounting information Collectivism, Westview Press
to be shared to serve various needs.
Horizontal and vertical individualism
Long-term versus short-term orientation (LTO)
In horizontal individualism (e.g. Australia, Sweden,
Management accountants can detect differences in LTO Demark, Norway), the individual is almost equal in
by calculation of accrued vacation pay at year-end closing. status with others, and personal identity and uniqueness
Although company policy can always have an influence, are considered important. On the other hand, vertical
many employees in high-LTO countries have a tendency individualism (e.g. the United States, Great Britain, France)
to maintain significant unused vacation time to be carried is more concerned with individual status in society:as
forward into the next year. Contrastingly, employees in low- such, winning in competition with othersand achieving
LTO countries are inclined to use up earned paid vacation greater personal power are emphasized, and the resultant
when available rather than save it for future use. The same inequality is accepted.
mind-set is applicable to job performance. For example,
Horizontal and vertical collectivism
high-LTO employees should not be evaluated by short-term-
oriented measures (e.g., immediate financial targets for Whereas in horizontal collectivism (e.g. the Kibbutz in
profit, cost and growth), as they tend not to be motivated Israel), interdependence and a sense of community are
by short-term-oriented rewards (e.g., immediate financial stressed,in vertical collectivism (e.g. Japan, Korea, India),
incentives). High-LTO employees might value sustainability the cohesion and status of in-groups, and individual
such as can be achieved via customer satisfaction and sacrifice to those in-groups, are given more emphasis.
continuous improvement, in the expectation of future
growth and promotions. Management accountants should Implications for management accountants
consider the LTO inclination of employees in determiningthe With respect tothe implications for management
types of measures and reward systems. accountants’relationships with their business partners,
some might be more likely to monopolize accounting
Individualism and collectivism information to maximize their own benefits;or,theymight
Cross-cultural psychologist Harry C. Triandis explored prepare or adjust accounting reports in furtherance
and summarized the dichotomous cultural aspects of of personal purposes. Individualism can explain these
individualism and collectivism, combining the findings of behavior patterns. Using information specifically to
several social scientists. He explained how the differences disadvantage others might be a further clear sign of
between individualism and collectivism influence the the influence of vertical individualism. Otherwise,
thought and behavior of group members, notably challenging management accountants sometimes are surprised to
the assertion that individualism is simply the opposite find that, contrary to their intention, their confidential
of collectivism. Rather, he categorized individualism and management accounting information has been shared
collectivism each into horizontal and vertical dimensions within groups through the contact person.Confidential
based on social relationships(emphasizing either equality information sharing of this or another type might indicate
or hierarchy). These four cultural measures might well either horizontal or vertical collectivism. Specifically, if the
facilitate understanding of the social behaviors relevant to information is shared only within the in-group, it could
management accounting. be a case of vertical collectivism. Certainly, management
accountants often face situations wherein they need to
Table 3: Triandis’ cultural individualism and collectivism understand colleagues’ social-behavior patterns —which

www.icmai.in October 2018 l The Management Accountant 47

 MANAGEMENT ACCOUNTING

are aspects of culture — in handling accounting information predetermined tasks where the original value (focal object)
before jumping to conclusions as to motivations, blame,or is to be achieved or maintained. Their capabilities in this
punishment. If so circumspect, management accountants regard are seldom affected by external environments or
can achieve forecasted results without incurring unintended conditions (relationships).
consequences.
Implications for management accountants
Holistic versus analytic perception The different culture-based perception processesmanifest
Social psychologist Richard E. Nisbett and his collaborators themselvesin the forms of employees’ responses to
contended that the perceptual processes are influenced the budgets allocated and monitored by management
by culture. They presented a large body of research and accountants. Employees with the holistic perception tend
evidence to demonstrate that different cultures perceive to be curious about others’ budgets and responses before
the world in unique ways. They even tracedsuchcultural analyzing their own resources. Comparing their efforts
differences to ancient Greece and China, respectively. They with others’,they seek to confirm their allocated budgets’
argued that Greek economic activities such as hunting rationality. Therefore, open and holistic budgetary control
and trading tended to focus attention on objects and their to show the relationships between departmental budgets
attributes in contexts where there was little cooperation and organizational goals will tend to be more effective in
with others. They also posited that Chinese rice-cultivating East Asian countries. Analytically perceiving employees,by
society, contrastingly, developed interdependent relations contrast, based on detailed analysis of their own resources,
among neighbors, with the concomitant emphasis on social might take issuewith allocated budgets,showing less
relations.Indeed, these differing patterns of attention in the interest in those of other people. In Western cultures, a
process of perception might color employees’ perceptions of logical and analytic approach based on the relevant area’s
management accounting information. historical and current data would be more appropriate
as a means of persuading budget owners. Management
Table 4: Nisbett’s holistic and analytic perception accountants, in coping with the two, culturally different
Holistic perception Analytic perception processes of perception, should consider correspondingly
Context or field Context or field independent
different approaches to budgetary control.
dependent
Attention to relationships Focus on attributes of the object,
Management accounting beyond borders
between a focal objectand detaching the object from its Cross-cultural studies have presented several ways
the field context that management accountants can recognize differences
Source: Nisbett, R. E. (2003). The Geography of Thought: How between cultures. Management accounting across borders
Asians and Westerners think differently… and why, cannot be free from the effect of cultural differences. Most
Free Press management accountants probably do not consider culture
to beparticularlyrelevant to their work. In fact, culture
Holistic perception process
per se is not directly related to any of the concepts or
East Asians tend to perceive the world more holistically, techniques of management accounting. When management
attending to the entire context and the object-context nexus. accountants think about culture at all,probably it isin
This is to say that their very ability to perceive objects is terms oftangible, observable things such as language,
influenced by the context and object-context relationships. food, dress, lifestyle,and others. However, studies in a
Accordingly, they show enhanced performance capabilities number of external disciplines show clearly how cultural
in cases where the proportion (relationship) is considered differences can impact on human thought and behavior—
more important than the original value or target (focal things that management accounting has to account forif
object). it is to achieve organizational goals. These differencesin
thought and behavior emerge, as if in clear relief, when and
Analytic perception process
where management accountants work across cultures. It is
Westerners show a general tendency to attend to the important to keep in mind that management accounting,
focal and salient objects,largely irrespective of contextual though itself not universal, is universally applicable with a
information. They even tend to organize and analyze good understanding of cultural differences.
objects by means of categories and rules, respectively. In
this process of perception, they demonstrate improved
concentration and accuracy in the performance of [email protected]

48 The Management Accountant l October 2018 www.icmai.in

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50 The Management Accountant l October 2018 www.icmai.in
 LEGAL

EXPRESSION OF INTEREST
IS THE PART OF THE
RESOLUTION PLAN
Expression of Interest
The phrase ‘expression of interest’ (‘EOI’ for short) is
having various meaning according to the requirement of the
situation. In commercial parlance expression of interest is
an informal offer made by a strategic or financial buyer for
the purchase of a business. The main purpose of EOI is to
suggest a valuation range that a buyer is willing to pay for
a company. Investment bankers usually request an EOI in
their bidding process to separate all potential buyers into a
smaller, more realistic list of qualified buyers that may be a
good fit for the seller.

EOI may also be treated as a call to potential providers

of goods and/or services to register interest in supplying
them. It is commonly a document describing requirements
CMA Dr. M. Govindarajan or specifications and seeking information from potential
Retired Accounts Officer
BSNL providers that demonstrate their ability to meet those
Madurai requirements.

www.icmai.in October 2018 l The Management Accountant 51

 LEGAL

Inviting EOI is not in the Corporate Insolvency Resolution

Process. However the provisions for inviting EOI is
incorporated in the IBBI (Insolvency Resolution Process for
The role of Insolvency Professional Corporate Persons) (Third Amendment) Regulations, 2018,
with effect from 03.07.2018.
is the central part of the corporate
insolvency resolution process. Steps for resolution plan before 03.07.2018
Approving the resolution plan by Before 03.07.2018 the process for approval of resolution
plan by an Insolvency Profession is as follows-
the Adjudicating Authority is the
vital in this process in which the  Preparation of Information Memorandum under section
Insolvency Professional is to take 29 of Insolvency and Bankruptcy Code, 2016 (‘Code’
much careful in selection of the for short);

resolution plan. Inviting expression  Submission of resolution plan by resolution applicant

of interest is not one of the methods under section 30 of the code read with Regulation 36A
to be adopted by the Insolvency of IBBI (Insolvency Resolution Process For Corporate
Persons) Regulations, 2016 and examination of the
Resolution Professional. In one resolution plans by the Insolvency Professional;
case law, discussed in this article,
the Insolvency Professional invited  Approval of resolution plan by the Committee of
Creditors under section 30 (4) of the Code;
Expression of Interest from the
eligible resolution applicants. In  Approval of resolution plan by the Adjudicating
the meanwhile a new section 29A Authority under section 31.
was inserted by the Insolvency
Amendment in the Act and the Regulations
Bankruptcy (Amendment) The Central Government made an ordinance called ‘The
Ordinance, 2017 which prescribes the Insolvency and Bankruptcy Code (Amendment) Ordinance,
disqualifications of the resolution 2017 which came into effect from 23.11.2017. The said
ordinance became an act by means of the Insolvency
applicant. Further the IBBI and Bankruptcy Code (Amendment) Act, 2018. The said
(Insolvency Resolution Process for Act inserted a new section 29A which prescribes the
Corporate Persons) (Amendment) disqualifications of the resolution applicants. The IBBI
also amended the IBBI (Insolvency Resolution Process for
Regulations, 2018 substituted a Corporate Persons) Regulations, 2016 vide Notification No.
new Regulation for Regulation 36A IBBI/2018-19/GN/REG031, dated 03.07.2018 called as the
which prescribes the procedure for IBBI (Insolvency Resolution Process) (Third Amendment)
invitation of Expression of Interest. Regulations, 2018, in which-

This article discusses the issue  a new regulation has been substituted for Regulation
whether the Invitation of Expression 36A;
of Interest in the earlier period
 a new regulation 36B has been inserted;
amounts to part of the resolution
plan with reference to decided  a new regulation has been substituted for Regulation
case law. 37 which deals with the resolution plan;

 a new sub clause has been substituted for Regulation

38(4)

52 The Management Accountant l October 2018 www.icmai.in

Expression of interest under Regulation 36A  state the ineligibility norms under section 29A to
The newly substituted Regulation provides for invitation the extent applicable for prospective resolution
of expression of interest. This procedure is applicable to applicants;
the insolvency resolution process on or after 03.07.2018.
Before that the procedure of inviting expression of interest  provide such basic information about the corporate
is not applicable. debtor as may be required by a prospective
resolution applicant for expression of interest; and
Regulation 36A provides that-
 not require payment of any fee or any non-
 The resolution professional shall publish brief refundable deposit for submission of expression of
particulars of the invitation for expression of interest interest.
in Form G of the Schedule.
 A prospective resolution applicant, who meets the
 The said particulars shall be published not later than requirements of the invitation for expression of
seventy-fifth day from the insolvency commencement interest, may submit expression of interest within the
date, from interested and eligible prospective resolution time specified in the invitation.
applicants to submit resolution plans.
 The expression of interest received after the time
 The resolution professional shall publish Form G- specified in the invitation shall be rejected.

 in one English and one regional language newspaper  An expression of interest shall be unconditional and be
with wide circulation at the location of the registered accompanied by-
office and principal office, if any, of the corporate
debtor and any other location where in the opinion  an undertaking by the prospective resolution
of the resolution professional, the corporate debtor applicant that it meets the criteria specified by the
conducts material business operations; committee under section 25(2)(h);

 on the website, if any, of the corporate debtor;  relevant records in evidence of meeting the criteria
as in the previous point;
 on the website, if any, designated by the Board for
the purpose; and  an undertaking by the prospective resolution
applicant that it does not suffer from any ineligibility
 in any other manner as may be decided by the under section 29A to the extent applicable;
committee.
 relevant information and records to enable an
 The Form G in the Schedule shall – assessment of ineligibility ;

 state where the detailed invitation for expression of  an undertaking by the prospective resolution
interest can be downloaded or obtained from, as applicant that it shall intimate the resolution
the case may be; and professional forthwith if it becomes ineligible at
any time during the corporate insolvency resolution
 provide the last date for submission of expression process;
of interest which shall not be less than fifteen days
from the date of issue of detailed invitation.  an undertaking by the prospective resolution
applicant that every information and records
 The detailed invitation shall- provided in expression of interest is true and correct
and discovery of any false information or record
 specify the criteria for prospective resolution at any time will render the applicant ineligible to
applicants, as approved by the committee in submit resolution plan, forfeit any refundable
accordance with section 25(2)(h); deposit, and attract penal action under the Code;
and

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 LEGAL

 an undertaking by the prospective resolution  Filing for approval of resolution by Adjudicating

applicant to the effect that it shall maintain Authority.
confidentiality of the information and shall not use
such information to cause an undue gain or undue Issue
loss to itself or any other person and comply with As per the above discussion it can be inferred that
the requirements under section 29(2). expression of interest is part of the resolution plan process
on or after 03.07.2018. But before 03.07.2018 there is no
 The resolution professional shall conduct due diligence mention about expression of interest either in the Code
based on the material on record in order to satisfy that or in the Regulations. The issue to be discussed in this
the prospective resolution applicant complies with- article is whether expression of interest is invited before
03.07.2018 by the Insolvency Professional, whether the
 the provisions of section 25(2)(h); same would be considered as part of the resolution plan
process. The said issue is solved by the Appellate Tribunal
 the applicable provisions of section 29A, and in ‘Numetal Limited v. Sathish Kumar Gupta R.P. and
another’ – Company Appeal (AT) (Insolvency) No.
 other requirements, as specified in the invitation for 169/2018 – NCLAT, decided on 07.09.2018.
expression of interest.
Facts of the case
 The resolution professional may seek any clarification Pursuant to applications under Section 7 of the Code filed
or additional information or document from the by the ‘Standard Chartered Bank’ and the ‘State Bank of
prospective resolution applicant for conducting due India’, the ‘Corporate Insolvency Resolution Process’ was
diligence. initiated against ‘Essar Steel India Limited’- (‘Corporate
Debtor’).
 The resolution professional shall issue a provisional
list of eligible prospective resolution applicants within  The ‘Resolution Professional’ issued an advertisement
ten days of the last date for submission of expression on 6th October, 2017 under Section 25(2)(h) of the
of interest to the committee and to all prospective Code invitation seeking ‘Expression of Interest’ to
resolution applicants who submitted the expression of submit ‘Resolution Plan’ for ‘Essar Steel India Ltd.’
interest. from potential ‘Resolution Applicants’ which were to be
submitted along with relevant document on or before 5
 Any objection to inclusion or exclusion of a prospective P.M. on 23rd October, 2017.
resolution applicant in the provisional list may be made
with supporting documents within five days from the  ‘Arecellor Mittal India Private Ltd.’ submitted its
date of issue of the provisional list. ‘Expression of Interest’ to submit ‘Resolution Plan’ along
with all relevant documents on 11th October, 2017.
 On considering the objections received, the resolution
professional shall issue the final list of prospective  The ‘Numetal Ltd.’ submitted ‘Expression of Interest’ of
resolution applicants within ten days of the last date ‘Resolution Plan’ along with all relevant documents on
for receipt of objections, to the committee. 20th October, 2017, which was accepted and confirmed
by the ‘Resolution Professional’ on 31st October, 2017.
Steps for resolution plan after 03.07.2018
Thus after 03.07.2018 the process for obtaining resolution  After submission of the ‘Expression of Interest’ of
plan is undergoing the following methods- ‘Resolution Plan(s)’, Section 29A was inserted by
the Insolvency and Bankruptcy Code (Amendment)
 Information Memorandum by Insolvency Professional; Ordinance, 2017, which describes the disqualifications
of resolution applicants.
 Invitation for expression of interest;
 In view of introduction of section 29A the resolution
 Request for resolution plan; professional, by an addendum of 08.02.2018 asked
the appellants to submit resolutions plans and
 Approval of resolution plan by Committee of Creditors; accordingly the appellants submitted resolution plans

54 The Management Accountant l October 2018 www.icmai.in

 on 12.02.2018. person has executed a guarantee in favor of a creditor in
respect of a corporate debtor against which an application
 The Insolvency Professional examined the applications for insolvency resolution made by such creditor has been
of both the applicants and obtained legal opinion as to admitted under this Code and such guarantee has been
the eligibility of the applicants. invoked by the creditor and remains unpaid in full or part.

 Since the resolution plans submitted by the applicants Ineligibility of AM India

are not eligible, the Committee of Creditors decided to The Resolution Professional stated that as on the Plan
extend the due date for submission of resolution plans Submission Data, AM Netherlands (a connected person of
and permit all the potential resolution applicants to AM India), continued to be classified as a promoter of Uttam
submit their new resolution plans. Galva and had not completed the regulatory compliances
relating to declassification as a promoter of Uttam Galva
 Three resolution plans were submitted including the two and accordingly, the resolution plan was ineligible.
applicants before the stipulated date i.e., 02.04.2018.
Order of Adjudicating Authority
Ineligibility of New metal The Adjudicating Authority, in the impugned order, held
New Metal is considered ineligible under Section 29A of that both the applicants are ineligible under section 29A
the code, specifically sub-section (c) and (h) and accordingly, of the Code. The Adjudicating Authority, however, partly
as on the Plan Submission Date (i.e. 12 February, 2018), allowed the applications, taking into consideration that the
Numetal (which is nothing but an incorporated joint ‘Committee of Creditors’ has not followed the procedures
venture investment vehicle through which its shareholders under Section 30(4), directing the ‘Resolution Professional’
are submitting the Resolution Plan) was not eligible under and the ‘Committee of Creditors’ to revisit and reconsider
Section 29A of the Code. their decision in the light of proviso to Section 29A (c)
read with proviso to Section 30(4) of the Code and to
Section 29A© of the Code provides that a person shall act in accordance with law and/or to make good of the
not be eligible to submit a resolution plan, if such person, disability. The Adjudicating Authority also gave liberties
or any other person acting jointly or in concert with such to the applicants to challenge the reconsidered decision of
person at the time of submission of the resolution plan has ‘Committee of Creditors’ in the appropriate forum.
an account, or an account of a corporate debtor under the
management or control of such person or of whom such Appeal
person is a promoter, classified as non-performing asset Against this order the appellants filed the present appeal
in accordance with the guidelines of the Reserve Bank of before the Appellate Tribunal.
India issued under the Banking Regulation Act, 1949 or the
guidelines of a financial sector regulator issued under any The Appellate Tribunal analyzed the provisions of section
other law for the time being in force, and at least a period 29A of the Act and section 30 of the Code. The Appellate
of one year has lapsed from the date of such classification Tribunal observed that-
till the date of commencement of the corporate insolvency
resolution process of the corporate debtor.  The substantive provision of Section 29A of the Code
suggests that not only a person is ineligible to submit
The first proviso to section 29A© provides that the a ‘Resolution Plan’, but also a person with any other
person shall be eligible to submit a resolution plan if such person acting jointly or in concert with such person, if
person makes payment of all overdue amounts with interest attracts any one or other ineligibility clause mentioned
thereon and charges relating to non-performing asset in clauses (a) to (i) is also ineligible.
accounts before submission of resolution plan. The second
proviso provides that nothing in this clause shall apply to  In terms of clause (j) of Section 29A, if the ‘connected
a resolution applicant where such applicant is a financial person’ is not eligible under clauses (a) to (i), then also
entity and is not a related party to the corporate debtor. the person who submits the ‘Resolution Plan’ is not
eligible.
Section 29A (h) of the Code provides that a person shall
not be eligible to submit a resolution plan, if such person, As per section 30(1), a ‘Resolution Applicant’ may submit
or any other person acting jointly or in concert with such a ‘Resolution Plan’ to the ‘Resolution Professional’ prepared

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 LEGAL

on the basis of the ‘Information Memorandum’, which the immediately before the Adjudicating Authority who in its
‘Resolution Professional’ is to examine in terms of section turn will pass order under Section 31 in accordance with
30(2) 30. law. The ‘Successful Resolution Applicant’ will take steps for
execution of its ‘Resolution Plan’ and deposit the upfront
Proviso to section 30(4) stipulates that the ‘Committee of money if proposed, in terms of the ‘Resolution Plan’.
Creditors’ shall not approve a ‘Resolution Plan’, submitted
before the commencement of the Insolvency and Bankruptcy The Appellate Tribunal observed that the provisions of
Code (Amendment) Ordinance, 2017 where the ‘Resolution Code, including Sections 25, 29A, 30, talk of ‘Resolution
Applicant’ is ineligible under Section 29A and may require Plan’ but do not provide submission of any ‘Expression of
the ‘Resolution Professional’ to invite a fresh ‘Resolution Interest’ as was called for by ‘Resolution Professional’.
Plan’ where no other ‘Resolution Plan’ is available with it.
In the present case, the ‘Expression of Interest’ was
Second proviso further stipulates that where the submitted by ‘AM India Ltd.’ on 11th October, 2017 and
‘Resolution Applicant’ referred to in the first proviso is by ‘Numetal Ltd.’ on 20 October, 2017, both prior to 23rd
ineligible under clause (c) of Section 29A, the ‘Resolution November, 2017 i.e. the date Section 29A was inserted
Applicant’ shall be allowed by the ‘Committee of Creditors’ by the Insolvency and Bankruptcy Code (Amendment)
such period, not exceeding thirty days, to make payment of Ordinance, 2017 but the ‘Resolution Plans’ were submitted
overdue amounts in accordance with the proviso to section by both ‘AM India Ltd.’ and ‘Numetal Ltd.’ on 12th February,
29A (c). 2018.

The Appellate Tribunal held that the ‘Resolution What the Appellate Tribunal found from the invitation
Professional’ and the Adjudicating Authority rightly relied seeking ‘Expression of Interest’ to submit a ‘Resolution
on Regulation 2(1)(q) of ‘SEBI (Substantial Acquisition of Plan’ for ‘Essar Steel Limited’ published on 6th October,
Share and Takeover) Regulations, 2011’ for the purpose 2017 is the first stage of ‘Resolution Plan’. Therefore, the
of expression of ‘person acting in concert’at the time of Appellate Tribunal held that ‘Expression of Interest’ is part
submission of 1st Resolution Plan by ‘Numetal Ltd.’, one of the ‘Resolution Plan’, which follows the ‘Resolution Plan’.
of the shareholders being ‘AEL’, ‘Numetal Ltd.’ was not In such case, the date of submission of the ‘Expression of
eligible to submit Resolution Plan’ in terms of Section 29A. Interest’ should be treated to be the date of submission
The ‘Resolution Plan’ submitted by ‘Numetal Ltd.’ on 29th of the ‘Resolution Plan’. In this background, the Appellate
March, 2018 is required to be considered by the ‘Committee Tribunal held that the date of submissions of the 1st
of Creditors’ to find out its viability, feasibility and financial ‘Resolution Plan(s)’ of ‘AM India Ltd.’ and ‘Numetal Ltd.’ will
matrix. be deemed to be 11th October, 2017/12th February, 2018
and 20th October, 2017/12th February, 2018 respectively.
The Appellate Tribunal also held that ‘AM India Ltd.’ is
also entitled to the benefit of second proviso to section The Appellate Tribunal further held that if the aforesaid
30(4). The Appellate Tribunal gave one opportunity to the proposition is not accepted, the Appellate Tribunal held
‘Resolution Applicant’- ‘AM India Ltd.’ to make payment that it will deprive the ‘Resolution Applicants’ from deriving
of all overdue amount with interest thereon and charges advantage of second proviso to sub-section (4) of Section
relating to Non Accounts of both the ‘Uttam Galva’ and the 30 inserted on 23rd November, 2017, even though they
‘KSS Petron’ in their respective accounts within three days acted to submit the ‘Resolution Plan’ by submitting the
i.e. by 11th September, 2018. If such amount is deposited ‘Expression of Interest’ of ‘Resolution Plan’.
in the accounts of both Non-Performing Accounts of
‘Uttam Galva’ and ‘KSS Petron’ within time aforesaid and The Appellate Tribunal held that the Adjudicating
is informed, the ‘Committee of Creditors’ will consider the Authority rightly held that the Appellant- ‘AM India Ltd.’
‘Resolution Plan’ submitted by ‘AM India Ltd.’ along with should have been given the opportunity by the ‘Committee
other ‘Resolution Plans’, including the ‘Resolution Plan’ of Creditors’ in terms of second proviso to sub-section (4)
submitted by the ‘Numetal Ltd.’ on 29th March, 2018. If of Section 30.
necessary, negotiations may be made with the ‘Resolution
Applicant(s)’. An early decision should be taken by the
‘Committee of Creditors’ and on approval of the ‘Resolution [email protected]
Plan’, the ‘Resolution Professional’ would place the same

56 The Management Accountant l October 2018 www.icmai.in

 COMPANIES ACT
COMPANIES (AMENDMENT)
ACT, 2017
ON EASE OF DOING BUSINESS

CMA (Dr.) Subhash Chandra Das

Former Director (Finance)
HPC Ltd.
Kolkata

www.icmai.in October 2018 l The Management Accountant 57

 C O M PA N I E S A C T

n 1st February, 2016 the Company Law Committee

submitted its recommendation to the GoI regarding
changes to be made to the Companies Act, 2013.
On 16th March, 2016, the GoI proposed the Companies
(Amendment) Bill, 2016 on the basis of the Committee’s
recommendation in order to amend the 2013 Act. The
same Bill was presented in the year 2017 as the Companies
(Amendment) Bill 2017. Both Lok Sabha and Rajya Sabha
passed the Bill on 27th July, 2017 and 19th December,
2017 respectively. On 3rd January, 2018 the Companies
(Amendment) Act, 2017 got the assent of the Hon’ble
The Companies (Amendment) Bill, President of India.

2016 was passed in both Houses The Amendments under the Companies (Amendment)
Act, 2017 are broadly aimed at
Parliament in 2017 and subsequently
(a) Addressing difficulties in implementation due to
got the assent of Hon’ble President stringent compliance requirements;

of India on 3rd January, 2018 and (b) Facilitating ease of doing business in order to promote
growth and employment;
notified in the Official Gazette. One
(c) Harmonising the Accounting Standards, the SEBI Act,
of the objectives for amendments 1992 and the RBI Act, 1934 and the regulations made
thereunder;
under the Companies (Amendment)
(d) Rectifying omissions and inconsistencies in the Act
Act, 2017, has been to facilitate ‘Ease
Out of various provisions of the Companies (Amendment)
of Doing Business’ for promotion of Act, 2017, we discuss here some of the provisions that have
facilitated ease of doing business in order to promote faster
growth and employment. growth of the companies.

In this Article some of the provisions Incorporation of company

Section 7(1)(c) of the Companies Act, 2013 provides
of the Companies (Amendment) that there shall be filed with the Registrar within whose
jurisdiction the registered office of a company is proposed
Act, 2017 facilitating ‘Ease of Doing to be situated “an affidavit” from each of the subscribers
to the memorandum and from persons named as the first
Business’ are discussed. directors, if any, in the articles that he is not convicted of
any offence in connection with the promotion, formation
or management of any company, or that he has not been
found guilty of any fraud or misfeasance or of any breach
of duty to any company under this Act or any previous
company law during the preceding five years and that all
the documents filed with the Registrar for registration of the
company contain information that is correct and complete
and true to the best of his knowledge and belief.

The 2017 Act, has now provided that the words “an
affidavit” shall be replaced by the words “a declaration”

58 The Management Accountant l October 2018 www.icmai.in

from the first subscribers to the memorandum and first or where there is no company secretary, by a company
directors which will ease the burden of submitting additional secretary in practice:
document i.e. an affidavit. This will also avoid delay in the
process of incorporation of a company. Provided that in relation to One Person Company and
small company, the annual return shall be signed by the
Annual return company secretary, or where there is no company secretary,
Section 92(1) of the 2013 Act provides that every company by the director of the company.
shall prepare a return (hereinafter referred to as the annual
return) in the prescribed form containing the particulars as In order to facilitate ease of doing business the following
they stood on the close of the financial year regarding – amendments have been made by the 2017 Act in Section
92(1):
(a) its registered office, principal business activities,
particulars of its holding, subsidiary and associate (1) the words “its indebtedness” mentioned in clause (c)
companies; has been omitted;

(b) its shares, debentures and other securities and (2) The Central Government has been empowered to
shareholding pattern; prescribe an abridged from of annual return for One
Person Company and Small Company whereby a clause
(c) its indebtedness; has been included as follows

(d) its members and debenture-holders along with changes “Provided further that the Central Government may
therein since the close of the previo0us financial year; prescribe abridged form of annual return for One Person
Company, small company and such other class or classes
(e) its promoters, directors, key managerial personnel of companies as may be prescribed.”
along with changes therein since the close of the
previous financial year; Section 92(3) of the 2013 Act provides that “an extract of
the annual return in such form as may be prescribed shall
(f) meetings of members or a class thereof, Board and its form part of the Board’s report.”
various committees along with attendance details;
The above Section 92(3) has been substituted by the 2017
(g) remuneration of directors and key managerial Act as follows:
personnel;
“Every company shall place a copy of the annual return
(h) penalty or punishment imposed on the company, its on the website of the company, if any, and the web-link of
directors or officers and details of compounding of such annual return shall be disclosed in the Board’s report.”
offences and appeals made against such penalty or
punishment; Return to be filed with Registrar in case promoters’
stake changes
(i) matters relating to certification of compliances, Section 93 of the 2013 Act provides that “Every listed
disclosures as may be prescribed; company shall file a return in the prescribed form with
the Registrar with respect to change in the number of
(j) details, as may be prescribed, in respect of shared shares held by promoters and top ten shareholders of such
held by or on behalf of the Foreign Institutional company, within fifteen days of such change”.
Investors indicating their names, addresses countries
of incorporation, registration and percentage of The above provision of Section 93 of the 2013 Act has
shareholding held by them; and been omitted, the reason being that the same information
is also required to be filed with the Stock Exchanges/SEBI.
(k) such other matters as may be prescribed Therefore, in order to avoid unnecessary duplication of
reporting, the Companies (Amendment) Act, 2017 decided
and signed by a director and the company secretary, to delete this section from the Act.

www.icmai.in October 2018 l The Management Accountant 59

 C O M PA N I E S A C T

Place of keeping and inspection of registers, returns Thereafter, the original clause “Provided that” has been
etc. substituted as:
Section 94(1) of the 2013 Act has a proviso which states
that “Provided that such registers or copies of return may “Provided further that”. The rest of the clause and
also be kept at any other place in India in which more Explanation has remained unchanged.
than one-tenth of the total number of members entered
in the register of members reside, if approved by a special Calling of extraordinary general meeting
resolution passed at a general meeting of the company and Section 100(1) of the 2013 Act provides that “The Board
the Registrar has been given a copy of the proposed special may, whenever it deems fit, call an extraordinary general
resolution in advance”. meeting of the company”.

The 2017 Act has amended the above proviso which A proviso to Section 100(1) has been included with the
states that “Provided that such registers or copies of return above provision, by 2017 Act, as follows:
may also be kept at any other place in India in which more
than one-tenth of the total number of members entered “Provided that an extraordinary general meeting of the
in the register of members reside, if approved by a special company, other than of the wholly owned subsidiary of
resolution passed at a general meeting of the company”. a company incorporated outside India, shall be held at a
place within India.”
Filing of advance copy of proposed special resolution
to the Registrar has not served any purpose because It is quite apparent that in order to save the time and
the special resolution to this effect has to be filed as the efforts of many companies, the wholly owned subsidiary
requirements of Section 117(3) (a) of the Act. Therefore, of a company incorporated outside India has been allowed
deletion of the relevant portion of the proviso is justified. to hold its EGM outside India. In other words such wholly
owned subsidiary can hold EGM at any place of the world.
Annual general meeting
Section 96(2) of the 2013 Act provides that every annual Postal ballot
general meeting shall be called during business hours, Section 110(1) of the 2013 Act provides that
that is, between 9 a.m. and 6 p.m. on any day that is not a “Notwithstanding anything contained in this Act, a
National Holiday and shall be held either at the registered company–
office of the company or at some other place within the
city, town or village in which the registered office of the (a) shall, in respect of such items of business as the
company is situate: Central Government may, by notification, declare to be
transacted only by means of postal ballot; and
Provided that the Central Government may exempt any
company from the provisions of this sub-section subject to (b) may, in respect of any item of business, other than
such conditions as it may impose. ordinary business and any business in respect of which
directors or auditors have a right to be heard at any
Explanation–for the purposes of this sub-section, meeting, transact by means of postal ballot,
“National Holiday” means and includes a day declared as
National Holiday by the Central Government. in such manner as may be prescribed, instead of
transacting such business at a general meeting.”
The 2017 Act has provided an option to the unlisted
company to hold its AGM anywhere in India provided it is The following proviso has been added along with the
consented by all members in writing or in electronic mode above provision, by 2017 Act, as follows:
obtained in advance. That is why a column has been added
as follows: “Provided that any item of business required to be
transacted by means of postal ballot under clause (a), may
“Provided that annual general meeting of an unlisted be transacted at a general meeting by a company which
company may be held at any place in India if consent is is required to provide the facility to members to vote by
given in writing or by electronic mode by all the members electronic means under section 108, in the manner provided
in advance”. in that section.”

60 The Management Accountant l October 2018 www.icmai.in

 It is quite clear from insertion of the above proviso that Meeting of Board
the items required to be passed compulsorily by postal Section 173(2) of the 2013 Act provides that “The
ballot may now be transacted at a general meeting if the participation of directors in a meeting of the Board may
company is compulsorily required to provide the facility be either in person or through video conferencing or other
of electronic voting. In fact, the requirement of postal audio visual means, as may be prescribed, which are
ballot has no longer been relevant and important for the capable of recording and recognising the participation of
companies that are required to conduct voting by way of the directors and of recording and storing the proceedings
using electronic mode which provides same facility (as the of such meetings along with date and time:
postal ballot) to the shareholders to vote on resolutions in
case the shareholder is not in a position to attend general Provided that the Central Government may, by
meetings. Besides this amendment has been made with notification, specify such matters which shall not be dealt
a view to (i) facilitating maximum number of shareholders with in a meeting through video conferencing or other audio
to participate in the proceedings of the meeting and vote visual means.”
electronically; and (ii) saving the cost of conducting general
meetings and postal ballot. The 2017 Act has inserted another ‘Proviso’ after the
above Proviso, which is as follows:
Right of persons other than retiring directors to
stand for directorship Provided further that where there is quorum in a meeting
Section 160(1) of the 2013 Act provides that “A person who through physical presence of directors, any other director
is not a retiring director in terms of section 152 shall, subject may participate through video conferencing or other audio
to the provisions of this Act, be eligible for appointment visual means in such meeting on any matter specified under
to the office of a director at any general meeting, if he, or the first proviso.
some member intending to propose him as a director, has,
not less than fourteen days before the meeting left at the Rule 4 of the Companies (Meetings of Board and its
registered office of the company, a notice in writing under Powers) Rules, 2014 prescribes certain matters which
his hand signifying his candidature as a director or, as the shall not be dealt with in any board meeting through
case may be, the intention of such member to propose him video conferencing or other audio visual means. This rule
as a candidate for that office, along with the deposit of one unnecessarily restricted wider participation of directors even
lakh rupees or such higher amount as may be prescribed when the required quorum was physically present. Now
which shall be refunded to such person or, as the case may this new proviso will give relief to the directors, especially
be, to the member, if the person proposed gets elected as non-resident directors to participate in the discussion and
a director or gets more than twenty–five percent of total voting on important matters such as, approval of financial
valid votes case either on show of hands or on poll on such accounts etc. without travelling to the place of meeting.
resolution.” This will also result in saving of money and energy of the
companies and the directors.
The following proviso has been added along with the
above provision, by 2017 Act, as follows: Conclusion
There is no doubt all these provisions of the Companies
“Provided that requirements of deposit of amount shall (Amendment) Act, 2017 have facilitated ease of doing
not apply in case of appointment of an independent business in order to promote faster growth of the
director or a director recommended by the Nomination companies.
and Remuneration Committee, if any, constituted under
sub-section (1) of Section 178 or a director recommended
by the Board of Directors of the company, in the case of
a company not required to constitute Nomination and [email protected]
Remuneration Committee”.

It is quite clear from insertion of the above proviso that

the requirement of deposit in case of directors nominated
by the NRC/appointment of independent directors shall not
be applicable.

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L EGAL

INVOCATION OF ARTICLE 112

OF LIMITATION ACT, 1963 BY
PSBs/PSEs/PSUs
ord Kenyon described statutes of limitation as “Statutes
of repose” (vide per Dallas, C. J. in Tolson v. Kaye (1)) and
Bramwell, B. as “Statutes of peace” (Hunter v. Oibbons (2)).
In the case of Baker (1890)44 Ch.D.262, Cotton, L. J. observed that
pleas of limitation would never be looked upon with any favour
since they are used to defeat the debts clearly due. The purpose
and effect of statutes of Limitation is to protect defendants.

There are three reasons that support the enactment of statutes

of limitation, (1) that a Plaintiff with good causes of action should
pursue them with reasonable diligence, (2) that a defendant might
Hareesh Kolichala
Chief Manager (Law) have lost evidence to disprove a stale claim and (3) that long
Union Bank of India dormant claims have more cruelty than justice in them (Halsbury’s
Kolkata laws of England, 4th Edition).

62 The Management Accountant l October 2018 www.icmai.in

 The general rule is that the limitation begins when the Officer [MAN/SC/0850/2013] that the Statute of Limitation
Plaintiff’s cause of action accrues or is made to be aware is founded on public policy, its aim being to secure peace in
of the injury that might have happened a long time ago (eg. the community, to suppress fraud and perjury, to quicken
Asbestos injury). diligence and to prevent oppression. It seeks to bury all acts
of the past which have not been agitated unexplainably and
In classical Athens, statute of limitation established five have, from lapse of time, become stale.
years as a bar for all cases other than homicide and for
prosecution against non-constitutional laws, which had Section 3 of the Limitation Act, 1963 provides that the
no limitation. Demosthenes, who was a prominent Greek bar of limitation is required to be examined by the Court in
statesman, wrote that these statutes of limitation were relation to every suit, appeal or application even if limitation
adopted specifically to control sycophants. as such has not been set up as a defence.

In India, the first attempt to introduce Law of Limitation Under the Scheme of the present enactment, limitation
was made by the Limitation Act, 1859 (XIV of 1859) which prescribed for claims on behalf of private persons and
came into operation in 1862 and subsequently the present Governments including Central, State and Local authorities
Limitation Act, 1963 came to be enacted after the Acts of is different. Generally, suits by private persons for various
1871, 1877 and 1908. claims under the Act is three years whereas the time limit
prescribed for any suit on behalf of the Government is thirty
It is held by the Supreme Court Vs. The Spl.Land Acquisition years as per Article 112 of Schedule to the Limitation Act, 1963.

Article 112 provides as under :

SL. DESCRIPTION OF SUIT PERIOD OF LIMITA- TIME FROM WHICH PERIOD BEGINS
NO. TION TO RUN
Any suit (except a suit before the
Supreme Court in the exercise of its
original jurisdiction) by or on behalf When the period of limitation would begin
112. of the Central Government, or any Thirty years to run under this Act against a like suit by a
State Government including the private person.
Government of the State of Jammu
and Kashmir.

In India, Public Sector Undertakings(PSUs), Public Sector “3(8). “Central Government” shall-
Banks (PSBs), Public Sector Enterprises (PSEs) and
Government Companies have been formed under and by (a) in relation to anything done before the commencement
various statutes of Parliament/State legislatures which are of the Constitution, mean the Governor-General or the
wholly or substantially funded from the public exchequer Governor-General in Council, as the case may be, and
and they are here to stay. However, the moot question is shall include,
whether these PSUs/PSBs can invoke Article 112 or not.
(i) in relation to functions entrusted under Sub-section
In the case of Bharat Sanchar Nigam Ltd.,Vs.Pawan (1) of Section 124 of the Government of India Act,
Kumar Gupta [(2007)4PLR414], the Punjab & Haryana 1935, to the Government of a Province, Provincial
High Court had an occasion to deal with the said issue. In Government acting within the scope of the authority
the said case, BSNL, a Government of India Undertaking, given to it under that sub-section, and
had filed a suit for recovery of Rs.25,296/- for the use of
telephone provided to the Defendant therein. Since the (ii) in relation to the administration of a Chief
expression, “Central Government and State Government” Commissioner’s Province, the Chief Commissioner
have not been defined in the Limitation Act, 1963, the acting within the scope of the authority given to him
Court had taken the aid of General Clauses Act, 1897 and under Sub-section (3) of Section 94 of the said Act;
dismissed the appeal filed by BSNL. Section 3(8) of the and
General Clauses Act,1897 defined “Central Government” as
under : (b) in relation to anything done or to be done after the

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 LEGAL

commencement of the Constitution, mean the President; claim due to the DoT is wholly misconceived in law. The
and shall include, other argument advanced by the learned senior Counsel
on behalf of the Appellant-company that it is an agency or
(i) in relation to functions entrusted under Clause (1) of instrumentality under the Central Government which falls
Article 258 of the Constitution to the Government within the inclusive definition as defined Under Section 3(8)
of a State, the State Government acting within the of the General Clauses Act is wholly misconceived for the
scope of the authority given to it under that clause; reason that Article 112 of the Limitation Act speaks of the
Central Government or the State Government. Its agencies
(ii) in relation to the administration of a Part C State or instrumentalities are not incorporated Under Article 112
[before the commencement of the Constitution of the Limitation Act. Such an argument is contrary to the
(Seventh Amendment) Act, 1956], the Chief Constitution Bench judgment of this Court in the case of
Commissioner or the Lieutenant-Governor or the Padma Sundara Rao (Dead) and Ors. v. State of T.N. and
Government of a neighbouring State or other Ors. reported in (2002) 3 SCC 533. In paragraph 14 of the
authority acting within the scope of the authority said judgment it is categorically stated that the legislative
given to him or it under Article 239 or Article 243 of casus omissus cannot be supplied by judicial interpretative
the Constitution, as the case may be] [and] process and the Court cannot do the legislative functions.

(iii) in relation to the administration of a Union Territory, The Law Commission of India had, in its 60th Report on
the administrator thereof acting within the scope of General Clauses Act, 1897, observed as under :
the authority given to him under Article 239 of the
Constitution:]]” “1.19. Since the passing of the Act, however, far--reaching
changes have taken place in this country. The constitutional
The High Court had accordingly upheld the decision of the set-up has altered completely after the attainment of
trial court that the BSNL could not invoke Article 112 of the independence, and the volume of legislation has increased
Act and hence the claim of the BSNL was barred by time. considerably. The range and variety of the new legislation
has given rise to substantial changes in legislative practice.
Similarly, the Madras High Court had also referred to the The quantity of sub-ordinate legislation has also assumed
General Clauses Act in the case of BSNL Vs.Wipro Net Ltd., large proportions. Some provisions of the Act of 1897 have
[2011(5)CTC854] and rejected the claim of BSNL to invoke come up for judicial consideration. A few of them have given
Article 112 of the Limitation Act, 1963, by its decision dated rise to conflict of views.
6.6.2011.
No large--scale revision of the General Clauses Act has
The judgment of Punjab & Haryana High Court was so far been undertaken. Certain minor amendments were
unsuccessfully carried in appeal (Bharat Sanchar Nigam Ltd. made by the amending Acts of 1903 and 1936. In addition,
Vs. Pawan Kumar Gupta (2016)1 SCC 63) by the BSNL before by various Adaptation Orders, the Act was, from time to
the Supreme Court. The Supreme Court held as under : time, amended to bring it in conformity with Government of
India Act, 1935 and with the Constitution. But the scope of
By a careful reading of the aforesaid Article, it makes such amendments was necessarily limited. Time has come
abundantly clear, that a suit can be instituted by or on when the Act should be completely reviewed, so as to bring
behalf of the Central Government. It is not the case of it in line with the fundamental constitutional changes and
the Appellant herein that it has filed the suit on behalf of the new trends in legislative practice.”
the Central Government. This is for the reason that the
Appellant-company has instituted the suit on the basis of Therefore, with due respect, it may not be appropriate for
the instrument of Office Memorandum wherein the DoT the courts to refer to the General Clauses Act for deriving
has transferred its assets and actionable claims. It cannot and arriving at the definition of “Central Government/
be said that it has filed the suit on behalf of the Central State Government” since the concept of Public Sector
Government because the Appellant/Plaintiff is a company, Undertakings/Government Companies was barely
a distinctly independent and separate entity. Therefore, conceived at the time of enactment of General Clauses Act
the reliance placed upon the aforesaid Article 112 of the in the year 1897. The court should have instead referred
Limitation Act to claim that there would be thirty years of to the Constitution of India which came into force in the
limitation period as the asset transferred is an actionable year 1950 and various decisions of the Supreme Court on

64 The Management Accountant l October 2018 www.icmai.in

the expression “State” as defined under Article 12 of the with Section 28 of the Act. Similarly, by virtue of Section
Constitution. In a catena of decisions, the Supreme Court 28 of the Act, the loss incurred by the Plaintiff directly in
of India held that Public Sector Undertakings/Public Sector consequence of carrying out the directions of the State
Banks/Government Companies were to be the “State” which Government under sub-section(1) of the Act, shall be made
is well settled law and no more res integra. good by the State Government. Thus, the liability to bear
the loss is on the State Government. Similarly, object of the
Further, in a pre-independence era case of Bengal North the Plaintiff Nigam is to implement the policy of the State.
Western Rly.Co.Ltd.,Janki Prasad &Anr. [AIR1936Pat362, While pursuing the directions of the State Government, if
Dated 17.4.1935], the High Court of Patna referred to the any loss has occasioned, the State Government of Madhya
relationship between the Secretary of State and the Railway Pradesh is required to bear the same by virtue of Section
Company and allowed the Railway Company to invoke Article 28 of the Act. Thus, if the claim agitated by the Plaintiff
149 of the Limitation Act, 1908 (the equivalent of Article 112 is treated as barred by limitation, the loss will fall on the
of the present Act. Under Article 149, the limitation available State Government, i.e,.on the public. The cumulative effect
to the Government was 60 Years). of the pleadings read in the context of the provisions of
the Madhya Pradesh Rajya Pashudhan Evam Kukkut Vikas
In another case, Kerala Financial Corporation was allowed Nigam Adhiniyam, 1982 is that the suit of the Plaintiff/
to invoke Article 112 for recovery of its dues : [Godan Respondent may be said to be on behalf of the Government
Namboorthripad Vs. Kerala Financial Corporation & ors [AIR of Madhya Pradesh and learned lower appellate court is not
1998 Kerala 31]]. The excerpts of the decision are as under : found to have committed any error in applying Article 112 to
the suit of the Plaintiff”.
“4. The Board of Revenue in its Ext. P2 order relied on
the decision of this Court in Nanu’s case (1987) 2 Ker LT Interestingly, the State of West Bengal had amended
92 land came to the finding that the proceedings under Article 112 of the Limitation Act (as applicable to the
Kerala Revenue Recovery Act is barred by limitation. But a State of West Bengal) by the Limitation (West Bengal
Full Bench of this Court in Kerala Fisheries Corporation Ltd. Amendment) Act, 1977 (West Bengal Act XXVII of 1977)
v. P.S. John, (1996) 1 Ker LJ 540, overruled the decision in and brought Government Companies owned wholly
Nanu v. State 1987 2 Ker LT 921 and held that the provisions either by the Central Government or State Government
of Limitation Act, 1963 cannot be made applicable to the or jointly by the Central and State Governments within
proceedings for recovery of dues under the K.R.R. Act. Even the purview of the said Article 112.
if it is assumed that the Limitation Act is applicable, the
amount due to the institution notified under Section 71 of The case of West Bengal Small Industries Corp. Ltd. Vs.
the K.R.R. Act is treated on a par with the amounts due M/s. Mall Plas Industries & Anr. [(2015)1WBLR(Cal)250]
to the Government in terms of Section 68 and as such decided on 23.4.2014 can be referred to wherein the Calcutta
Article 112 of the Limitation Act shall govern the case. It High Court held that the said Plaintiff company, being a
provides a period of 30 years as the period of limitation for Government Company could invoke Article 112 in view of
filing suits to recover the amount due to Government. In the law applicable in the State of West Bengal.
view of this Full Bench decision, the finding of the Board of
Revenue and the State Government on this issue in Exts. P2 Therefore, there is an anomalous position as to the
and P4 therefore, cannot be sustained.” invocation of Article 112 by PSE/PSUs/PSBs as some courts
allowed such invocation and some courts did not and that a
The Madhya Pradesh High Court had also allowed State Government has amended the law to bring such PSUs
Madhya Pradesh Rajya Pashudhan Evam Kukkut Vikas within the purview of Article 112.
Nigam to invoke Article 112 in the case of Central Bank of
India Vs.Madhya Pradesh Rajya Pashudhan Evam Kukkut However, all PSUs/PSEs/PSBs whether of State or Central
Vikas Nigam [AIR 2006 MP 176] on the following grounds : Government, can invoke Article 112 as per the decisions
of Patna High Court and Madhya Pradesh High Court as
“Plaintiff in Paragraph-1 of the Plaint has clearly stated that referred above and also, inter alia, for the following grounds
the Madhya Pradesh Rajya Pashudhan Evam Kukkut Vikas
Nigam is a corporate commercial unit of the Government of 1) The PSUs/PSBs/PSEs are controlled, managed and
Madhya Pradesh. Moreover, the net profit of the Plaintiff funded by the Central and State Governments.
is liable to go to the State Government in accordance

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 LEGAL

2) PSUs/PSBs/PSEs are amenable to writ jurisdiction of “If learned Counsel is right in his submission that there
the High Court and Supreme Court like Central and State is no rational basis for placing private individuals and the
Governments. Government in different classes while framing a legislation
providing for limitation for actions he might succeed; but
3) The employees of the PSU/PSBs/PSEs are “Public if he is wrong there and the correct view is that there is a
Servants” within the meaning of Section 21 of the Indian rational basis of classification, then the period that should
Penal Code, 1860 and also under the provisions of the be allowed to the Government to file a suit would be a matter
Prevention of Corruption Act, 1988 like Central and State of legislative policy and could not be brought within the
Governments. scope or purview of a challenge under Art. 14 or indeed of
any other article in the Constitution. It is sufficient therefore
4) PSUs/PSBs/PSEs are “Public Authorities” under the if we confine ourselves to the first point, viz., whether there
Right to Information Act, 2005 and they are required to is a rational basis for treating the Government differently
implement the Act like Central and State Governments. as regards the period within which claims might be put in
suit between the Government on the one hand and private
In the case of Nav Rattanmal Vs.State of Rajasthan [AIR individuals on the other.”
1961 SC 1704], the State Government filed a suit on the
basis of a security bond executed by a Government Treasurer “First, we have the fact that, in the case of the
and certain sureties who joined in the execution of the Government, if a claim becomes barred by limitation, the
bond which was challenged, on the grounds, inter alia, that loss falls on the public, i.e., the community in general and to
art.149 Of the Indian Limitation Act,1908 prescribing a 60 the benefit of the private individual who derives advantage
years period of limitation for suits by the Government was by lapse of time. This itself would appea3 r to indicate a
unconstitutional as violation of Art.14 of the Constitution sufficient ground for differentiating between the claims
and as such the suit was barred under art.83. It is urged that of an individual and the claims of the community at large.
there is no rational basis for treating claims by Government Next, it may be mentioned that, in the case of Government
differently from those of private individuals in the matter of machinery, it is a known fact that, it does not move as
the time within which they could be enforced by suit. quickly as in the case of individuals. Apart from the delay
occurring in the proper officers ascertaining that, a cause
It was contended that statutes of limitation were statutes of action has accrued, Government being an impersonal
of repose and enacted to ensure that stale claims were not body, before a claim is launched there has to be inter-
agitated, so that after a reasonable length of time people departmental correspondence, consultations, sanctions
might proceed on the footing that they would not be held obtained according to the rules. These necessarily take
liable for possible claims against them and argued that for time and it is because of these features which are sometimes
the purpose of agitating claims no distinction could be drawn characterized as red-tape that there is delay in functioning
between Government and private ‘ individuals and that on of Government offices”.
no rational basis could a legislation which permitted a longer
period of limitation for claims by the State be sustained. The reasons for which the State Government was allowed
to invoke Article 112 of the Limitation Act, 1963 are equally
In answering the above plea, Supreme Court had framed applicable to all Public Sector Enterprises, especially Public
two issues to be decided on this Point : (1) whether a Sector Banks, as large number of recovery cases are filed by
distinction could be drawn or a classification supported them and sometimes, suits for recovery in some account are
between the provision of any variation in the time that should left out owing to transfer/retirement of employees or due
be available for enforcing claims by private individuals and to issues peculiar to public bodies as stated by the Hon’ble
claims by the State and (2) whether, if such a classification Supreme Court and hence there is a case for revisiting the
were good, the period of 60 years provided by Art. 149 of position of law on the subject.
the Indian Limitation Act is such a long period of time as to
be unreasonable and hence arbitrary and violate Article 14
of the constitution?

While upholding the validity of Section 149 of the [email protected]

Limitation Act, 1908, Supreme Court observed as under :

66 The Management Accountant l October 2018 www.icmai.in

ECONOMY
HOW TO MAKE INDIA A
FINANCIALLY LITERATE
COUNTRY – STRATEGIES

L.Srinivasan
Senior Manager (retired)
Indian Overseas Bank
Chennai

www.icmai.in October 2018 l The Management Accountant 67

 ECONOMY

Financial literacy in India- challenges as c. The youth – especially the Gen-next and children
opportunities
India is unique among nations. People speaking different d. The unorganized sector
languages, practising different religious faiths, consuming
different kinds of foods and experiencing different climatic e. Workers of the organized sector-Government and
conditions share this vast land. Similarly, thousands of the private sector
richest in the world live beside millions of poor people,
who live below poverty line-wherever we draw the line!It f. MSME sector
is always difficult for us to answer, if someone were to
ask us a simple question-Is India a rich country or poor g. Women
country? There is no doubt that India’s GDP growth is good
and that India is blessed with abundant natural resources h. The investors
and human capital. But the prosperity of the country is not
equitably distributed among the people. i. The rich

All stakeholders to the economic growth of the country- j. Senior citizens

the Government of India, the banks, the regulators and the
Non-Government Organizations are concerned with the How to make the poor and the downtrodden
financial literacy of the people. Financial exclusion and financially literate
financial illiteracy will result in serious implications for the According to an RBI Survey, 21.67 crore people in rural
whole country. India live below the poverty line.5.31 crore people in urban
India live below poverty line. Poverty in India is more due
With India becoming more vibrant and visible now, the to financial illiteracy than any other factor. The poor do
nation has become the hub of many financial and economic not know how to save their hard-earned money and how to
activities. Huge FDI and FII investments, liberalization, come above the poverty level. They are caught in the vicious
privatization, globalization and consolidation processes cycle of usurious money lenders and become virtual bonded
have taken the centre-stage. India is at its financial and laborers. All stakeholders involved in the process of removal
economic cross-roads. of financial illiteracy should take proactive measures for
imparting financial literacy to this segment of population.
Therefore it has become more important and more urgent
My suggestions:
now than ever, to make India a financially literate country.
 Opening bank account for each individual is the
Mere literacy does not necessarily generate financial first and the most crucial step, in financial literacy
literacy. By financial literacy we mean broadly basic money initiatives for the poor.Banks should get themselves
management by individuals. It means that people must fully involved in making this big dream realized. They
be able to obtain, understand and evaluate information should view such opening of accounts of the poor,
required to make decisions to secure their financial not just as a Social responsibility but as a viable
future as best as possible. Financial literacy involves a business model. Of course, banks need to be assisted
gamut of activities including Money management, Credit by other stakeholders-Government agencies such as
management, Debt management, risk management, the Panchayat, Block Development Offices, NGOs,
investment and retirement planning Management. people’s representatives, ward/municipal members
etc, in ensuring that every individual opens his account.
We will address, in this paper, the strategies to make the
different segments of our population financially literate.  All social benefits to these segments such as
scholarship, pension, and subsidy should be routed
Broadly we will discuss empowering the following only through these accounts. This will eliminate leakage
segments with financial knowledge: of the monetary benefit.

a. The poor and the downtrodden  I strongly believe that these twin actions- opening
of bank accounts of the poor and transferring of
b. The rural agricultural community government money electronically to these accounts-

68 The Management Accountant l October 2018 www.icmai.in

 are the beginning of financial literacy for such people. of the society includes micro life insurance, accident
insurance and bank deposits such as small –value
 Beneficiaries of government sponsored schemes recurring deposits. Insurance companies-both life and
should be systematically identified and given financial non –life- should penetrate to the villages and enable
counseling when banks give loans. There should be the poor to insure their lives and their assets.
financial counseling sessions, wherein they should be
taught basic financial accounting (at least single entry  The stakeholders such as Government departments/
accounts-keeping) and financial discipline. NGOs can organize awareness programmes, skits, road-
shows on the importance of savings and optimizing
 Savings must be encouraged. Gram panchayats and wealth, in rural areas and in agricultural belt.
Gram sabhas should conduct informal sessions to
villagers and beneficiaries of government schemes on  Among all the stakeholders, banks can play a great
the importance of savings through formal financial role in providing financial literacy. They must help in
systems. converting the physical assets of the rural household
such as land, jewels, cash into financial assets and
 Financial literacy for the poor and vulnerable sections trigger economic activities among this sector.

Strategy to be adopted What it will achieve Who will implement the strategy

1 All individuals and house- The beginning of financial liter- Banks/NGOs and Government bodies/Business
holds to be given bank ac- acy. People become part of the correspondents
counts formal financial sector
2 All social benefits to be elec- Prevention of leakage of money Government and banks
tronically credited to the ac-
counts
3 Government schemes to BPL families will overcome pov- Government/banks/implementing agencies
be implemented on mis- erty in stages
sion-mode
4 Financial literacy awareness Overall financial knowledge will All stakeholders, NGOs,
programmes improve among the poor

5 Teaching life insurance and These two financial needs can be Life insurance and non life insurance companies
health insurance taught assisted by banks, through bancassurance model

6 Savings, investment ,money Basic financial knowledge Business correspondents and Business facilitators
management etc., appointed by banks

How to make the agricultural community financially the following:

literate
Agriculture is India’s strength. Agriculture contributes a) Water conservation methods – drip and sprinkler
18% to the country’s GDP. 60% of the total work-force is irrigation
engaged in the agricultural activities. In allied agricultural
activities also, India ranks high in the world. For example, b) Harnessing the solar power-reducing power costs
India is the largest producer of fresh fruits, oil seeds, dry
chillies, ginger, bajra, ragi etc.;it is the 6th largest coffee- C) Innovative farm and non-farm practices
producer and the second largest producer of cardamom,
cashew and silk. Our nation is the 6th largest producer of d) Money management, including credit management
marine and freshwater capture fisheries.
Financial Literacy and Credit Counseling Centres:
My suggestions:
(FLCCC)
Financial literacy for our agriculturists encompasses Many banks have taken pro-active steps to educate and

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 ECONOMY

empower the rural population, by giving them financial should be “Lab to Land” transfer of farming and non
literacy and credit counseling, through their FLCCCs. farming innovative measures. This transfer will increase
Reserve bank of India has given broad guidelines on the productivity and revenue for the farmer. Banks shall play
running of such centres. We require a large number of the role of the facilitator bringing all stakeholders for
such centres to cater to the entire rural population of the agricultural and allied activities together- NABARD, KVIB,
country. Ignorance and financial illiteracy lead the poor DIC, DRDA, Life insurers, National Horticulture Board
peopleinto the trap of vicious usurious money lenders.
The ultimate financial literacy for the agriculturists is to
Agricultural scientists are engaged in continuous R & D empower the agriculturists and to make agricultural and
efforts on farming and non-farming methods. But these allied agricultural activities commercially viable.
research findings do not reach the agriculturists. There
Strategy What it will result in Who will implement the strategy
1 Innovative farm/non farm Increased output and revenue for the NABARD, NHB, banks, Extension offices of
practices farmer the Government
2 Lab to Land transfer of new Optimum output with latest Agri universities/scientists/Banks
technology in agriculture technology
3 Imparting financial literacy Financial literacy will improve Banks
through FLCCC
4 Spreading financial literacy Knowledge at the grassroots level Governments –offices of Block development
through school teachers and will improve. Penetration of financial officers, Village panchayat
extension officers literacy

How to make the youth-the new generation- financially literate.

It is true that our youth have high educational qualifications and skills. Most of them earn good income. But they too
lack financial literacy. In our schools and colleges we do not teach money management or the habit of savings. The present
day youth would rather spend than save. They do not understand the implications of inflation. They follow the epicurean
principle of Carpe diem (enjoy the day or seize the day). They need to be imparted financial literacy.

My suggestions:
Strategy Who will implement
1 In our schools and colleges, students should be given sessions on money man- Schools and colleges
agement, the power of savings, the need to beat inflation, the power of com-
pounding of the rupee and wealth creation through systematic investments.
2 When the youngsters join companies, they should be oriented towards sav- Companies where youngsters join. These
ings and investment options and explained how these help them as individu- companies will draw help from invest-
als to enjoy the life in the present and how it will help them as they grow old. ment consultants and wealth managers.
3 The Gen-next should be sensitized on the need for adequate life insurance, Life insurance companies, Non-life in-
adequate health insurance, liquid cash to meet any exigencies, the need to surance companies and mutual fund
invest a part of their surplus in debt instruments and a part in equity instru- houses, as part of their Corporate Social
ments Responsibility (CSR)
4 Financial literacy of the Gen-next population is necessary as otherwise, there All stakeholders to the financial literacy
will be dissipation of their hard-earned money; and over the years they will campaign
regret the missed opportunities.
5 “Start early, invest systematically and stay invested”- these three mantras All stakeholders to the financial literacy
should be inculcated among the youth. campaign

6 Subtle differences between simple interest and compound interest, the nu- Schools and colleges. Banks should
ances of floating interest rates and fixed rates, the concept of Equated Month- teach these simple accounting entries to
ly Instalments should be taught to the youngsters from the very young age their newly recruited staff members

70 The Management Accountant l October 2018 www.icmai.in

 Catch them young segments of people need to be given literacy on micro life
insurance, health insurance, accident insurance and savings
I suggest that financial literacy should be a part instruments.
of the curricular at the high school level, with a well-
defined syllabus, text books, trained teaching staff and Financial literacy for the workers in the organized
allocated sessions. The following subjects can be the sector
broad framework of the curriculum: The salaried people in all segments-low income group
(LIG), middle income group (MIG) and high income group
a. Savings concept Vis-à-vis inflation (HIG) require financial counseling and literacy. Most of
b. Investment these people get good salary but lack in financial planning.
c. Simple interest and compound interest They should know how to manage the cash flow and how to
d. Interest rate as a concept- Fixed rate and floating create wealth for the long time. The benefits of systematic
interest investment plan should be inculcated to them. They need to
e. Debt instruments and equity instruments know the importance of adequate life insurance, adequate
f. Different kinds of avenues for an individual to save health insurance, and liquid funds for exigencies and long
and invest term plan for wealth creation.
g. What is risk in investment and how to mitigate it
h. Credit management Financial counseling to the MSME sector
i. Wealth creation through systematic investment plan
MSME sector:
j. Balancing spending and savings
The Micro, Small and Medium Enterprises (MSME) sector
Financial literacy for the unorganized sector is becoming the buzz-word in India. A strong GDP needs the
The unorganized sector constitutes a very big segment robust growth of the manufacturing sector. MSME sector
of the Indian population. A large number of people work as contributes to 45% of the total o9utput of the country.
construction workers, contract labourers, migrant workers, There are more than 26 million SME units in India. More
household workers, a large number of service providers than 50% of the labour force is employed in this sector.
such as vegetable vendors, cobblers, flower sellers, road- 40% of the total output of the country is contributed by
side vendors etc., SMEs.Today’s small entrepreneur becomes tomorrow’s
industry leader.
Financial literacy for such people is a challenging
task. However, all stakeholders to financial literacy They complement the large manufacturing companies.
propagation need to address this segment of people.These But these entrepreneurs lack financial discipline.

My suggestions:
Strategy for financial literacy Who will implement
MSMEs need to be taught basic accounting- at least single entry book keeping (cash book Banks, as part of their soft
concept)... intervention
They should know there Government of India is taking many initiatives to help them, Ministry of MSMED and
such as the MSMED Act and the formation of MSME Ministry at the Centre. Government of India
Banks need to take proactive role in educating this sector. Soft interventions are required Banks through soft intervention
for this sector. Credit counseling, training, interface with the large corporate and forma- and hard intervention
tion of clusters of Manufacturing units are some of the soft interventions that banks can
make to this sector.

Financial literacy will empower this sector and MSME than the men, about the importance of savings. However,
sector will become more vibrant. mere “savings” are not sufficient. They need to know how to
create wealth for their children and for their own. Women
Financial literacy for women: can absorb and imbibe financial literacy faster than men.
Women have always been the Great Spirit behind the Therefore, products such as Public Provident Fund (PPF),
renaissance of India. They are emotionally attached to National Savings Certificate (NSC), Recurring deposits (RD)
their families, especially their children. They are more aware of post offices and the banks should reach them.

www.icmai.in October 2018 l The Management Accountant 71

 ECONOMY

Converting physical assets into financial assets and commodity trading. The Stock exchanges, the wealth
Indian women have a great attachment for gold jewels. managers and financial consultants should take the
They keep thisjewellery either at their homes or in bank responsibility of providing the much-needed financial
lockers. But gold jewellery is a non performing asset. It literacy to this segment of society.
does not generate any income. Women need to be given the
financial literacy that they should convert these physical Investing in share markets and debt markets through
assets into financial assets. They can pledge their jewels the concept of mutual funds, invoking the mechanism of
with banks, avail themselves a loan, construct a house, set Systematic Investment Plan (SIP)- to invest in a disciplined
up a shop, set up a small manufacturing unit or engage way, Systematic Transfer Plan (STP) – to move money
themselves in some skilled activities to enhance their from less risky liquid funds to more risky Equity fund
income. and Systematic Withdrawal Plan (SWP)- to book profits
periodically, should be inculcated to all investors, who seek
Financial literacy for investors, specially those wealth creation over mid-term to long-term.
investing in share markets
Ironically, the group of people who are supposed to Financial literacy for the Rich and the HNI
have sufficient financial literacy, but possess actually the Accumulating wealth is good and important but more
least financial knowledge, are the investors. The world of important is the protection of the hard-earned wealth
investment is full of glittering shades; but investors fail to and maximize the wealth. In India, there are no sufficient
understand that all that glitters is not gold. number of and qualified wealth consultants. Hence, these
rich people and HNIs invest recklessly and lose their wealth.
Investment, especially in stock markets, especially, Financial literacy for this segment should include sessions
requires knowledge, patience, time and considerable on giving back to society a part of their wealth. They can
investible surplus. Most investors go by stray opinions also invest in nurturing the fine arts and cultural activities.
and take emotional decisions. They also want to make Such investment will enhance their social value.
quick money in a short time. They fail to understand that
investing in stock markets is not gambling. These investors Financial counseling for the Senior citizens
have to be given financial literacy on the basic tenets of It is a fact is that senior citizens become victims of false
stock market investing: They are: companies and entities and lose life-time savings in chit
companies and other mala-fide investment companies.
1. We cannot time the market Financial literacy needs to be imparted to the senior citizens
too. These investors should invest in instruments that will
2. Wealth is created over a long time take care of their retired life. Financial literacy of the senior
citizens is a social obligation of all stakeholders towards
3. Fundamental strengths and correct valuations should the elderly.
decide stock0purchase
Conclusion
4. Markets, which have the power to give, have the India, as we discussed earlier, is at its financial and
power to take also. economic cross-roads. The nation is becoming the hub of
financial activities. It is necessary for the country to become
5. Portfolio diversification and periodic review are vital literate not only in the conventional senseof the ability to
read and write but all segments of society should become
6. Markets will satisfy the need of the investor, but not fully financially literate. Financial literacy will empower the
his greed citizens and it will ensure that individuals create wealth
both for themselves and for the country.
Investment option – stock market or debt market -
depends upon three basic questions which investors have
to answer: a) what is your investible surplus? b) how long
can you stay invested? and c) What are your financial goals?

Similarly, investors need to be given financial education

on the skills required for going in for derivative products [email protected]

72 The Management Accountant l October 2018 www.icmai.in

 ECONOMY

GLOBAL
TRADE WARS:
A CASE OF INDIA AND USA
n the present 21st century, trade has been recognised
the most significant vehicle for accelerating the pace
of growth and development for a country irrespective
developed or developing in particular and global economy
in general. Accordingly, trade has come out the biggest issue
for the global community as a matter of great concern.
This is because the very purpose of creating World Trade
Organization (WTO) is being defeated i.e. “promotion of
multilateral trading system”.

Trade wars are being combined with the “build up in

leverage and higher asset unit values” [Rajan 2018] may
emerged out as deterrent to world growth and the same in
Professor Badar Alam Iqbal
turn may affect global trade in to a greater extent. It has
Adjunct Professor become sin-quo-non to have minimum trade wars among
Faculty of Economics and Finance the major trading economies across the world.
Monarch University
Zug (Switzerland) In the past decade, we have already seen that two
and
Emeritus Professor
contributory factors namely- leverage and asset prices were
Frederic Bastiat Institute responsible for 2008 crisis. The same situation is started
Republic of Ghana coming up. Hence, the global leaders must pay attention on

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 ECONOMY

both the issues on war footing. Otherwise the situation may firm opinion that the issue of trade frictions between US
become worse and out of control. and China and US and India is more political rather than
economic. This is because of the Trump’s courts voters in
It is an undisputed fact that, world growth has been the US industrial heartland ahead of mid-term election to be
strong and sound during the last few years. But the matter held in November 2018. Accordingly, Mr. Trump has raised
of concern for global players is how long it will remain a slogan “America First” [HT Business 2018]. Hence, the
strong and sound on the one hand and on the other side US Government has come out with a political trade agenda
the persisting elevated asset price could be justified on the aiming at clawing back manufacturing job opportunities
basis of strong and sound economic growth of the world. which had been lost to foreign auto players.

Trade frictions between China and the US: The recent move of Trump’s administration in regard to
The biggest threat to global trading system (Multilateral imposing tariffs may result into higher cost to foreign auto
Trading System) is the increased conflict of interest between makers to ship out vehicles and parts to the second largest
US and China. Recently, US Government has launched auto market of the globe. Added to this, increasing degree of
probe against China. According to the US Government, the trade frictions over cars and car parts, especially in case of
national security investigation is underway against car China, may create more risks for US auto firms expanding
and trucks imported from China in the light of Section 232 their presence in the US soil.
of Trade Expansion Act (TEA) of 1962. The very purpose
of the investigation to find out whether vehicles and The major chunk of vehicles sold in the US market by
parts importing from China are threatening the domestic major global auto makers namely- Japan and South Korea
industry’s health and ability to research and develop new are manufacturing over there, but most of the auto firms
and advanced technologies. The Commerce Sectary has also export to the US market from plants in Asia, Mexico,
observed that there is enough proof which is suggesting Canada and other nations. It is estimated roughly that one-
that for the last so many decades’ imports from trading third of the US vehicle imports in 2017 was from the Asian
partners especially China and India, have eroded the continents.
country’s auto industry. China, India and other countries
have asked the US Government that investigation must be The trade frictions has not only increased the degree of
through, fair and transparent. uncertainty over China’s economic growth and development,
the same also unsettled the lives of common Chinese people
It is rightly opined that higher tariffs imposed by the who are seeking advice on critical issues such as (a) where
US Government are painfully affecting Asian auto makers to invest; (b) how to run their business; and (c) whether or
namely Toyota; Nissan, Honda and Hyundai that are the not should peruse plans to emigrate to the US.
major exporters to US in greater extent. Accordingly, there is
broad sell off in auto makers’ shares across Asian continent. Trade war and growth of Euro zone:
The Government from Japan, China and South Korea have The development economists across the world are of
started taken steps in monitoring the trends and situation. the opinion that growth in Euro zone may muddle in 2018
Chinese Government has come out with the words that it and 2019 as compared to modest growth witnessed in the
would defend its interests. year 2017. According to Reuter’s poll, the majority of the
economists are expecting a brewing US led trade to hold
Chinese Government has been opposing the ongoing back growth in the region [Times Business 2018]. The
abuse of national security clause which is going to seriously most note worthy feature of the Reuters’s Survey is that 33
damaging the existing multilateral trading system in percent of the 53 economists are of the firm opinion that
particular and the WTO in general. This may increasingly US trade war has direct damaging impact on the growth of
affect and disturb the existing International Trade Order Euro zone. The remaining 20 per cent of the economists
(ITO). Mr. Gao has observed that there is an immediate are of the view that the trade war may not be beneficial for
need for focussing whether the Beijing and Washington are the Euro zone.
making any progress in their respective trade frictions which
has put ITO under heavy odds. The modest growth forecast for early next year i.e. 2019,
were reduced during July poll. Quarter-on-quarter growth
US Political agenda: was estimated between 0.4 and 0.5 per cent during every
Many political analysts across the world are of the quarter for 2018. For 2019 the expected growth may range

74 The Management Accountant l October 2018 www.icmai.in

between 0.3 and 0.6 per cent. The Euro zone economy Escalation in the trade frictions among global trade
should expand by a margin of 2.1 per cent in 2018 as players may put more pressure on trade and other related
compared to growth rate of 2.7 per cent witnessed in 2017. supply chain operations. This may result into the delay in
In 2019 the Euro zone growth may be at 1.8 per cent. investment decisions in the potentially affected industrial
units. World trade tensions have put Asia’s export
Trade frictions and Asian factories: dependent countries in a spot as the present growth cycle
With the rising global trade frictions, the factory growth is witnessing the sign of fatigue. Markit/Nikkei Japan
across Asia which is a manufacturing hub is witnessing Manufacturing Purchasing Managers Index (PMI) has
the signs of cooling. Accordingly, Asia’s major emerging recorded a decline of 1.0 per cent from 53.8 in April 2018 to
markets grappled with rising trend of inflation and a strong 52.8 per cent in May 2018.
US dollar.
Trade War: A Case of India and US:
Countries in export-reliant Asia continued to get benefit The major trading partners of the USA are China, India,
from a synchronized uptick in global growth, though the US Canada and Mexico. These days, the USA has huge trade
Government comes out with a policy of imposing tariffs on deficit with its major trading partners. The largest trade
its major trading partners have resulted into an increasing deficit has been with China as high as US $ 375.2 billion in
degree of uncertainty in the outlook and rattled financial 2017 [Table 1]. The lowest trade deficit has been in case of
markets [Times Nation 2018].. Canada as low as US $ 17.6 billon.

Table 1
US Trade Deficit with Major Trading Partners in 2017 (US $ Billion)
Item China Mexico India Canada

US Imports 505.6 314.1 48.6 300.0

US Exports 130.4 243.0 25.7 282.4

US Trade 375.2 71.1 22.9 17.6

Deficit (-)
Source: Times Business; (TOI); New Delhi; March 17, 2018.

Chart 1 India and the USA are traditional trade partners. The US
US Trade Imbalances with Major Trading Countries has come out as the largest trading partner of India during
(US $ Billions) April-May 2018. India has exported to USA worth of US $
47.9 billion between April and May 2018. In 2016-17, India’s
total shipment to the USA was stood at US $ 42.2 billion.
The trade experts have opined that the US would always be
top destination for Indian goods. The relative share of US in
India’s total shipments stood at 16 per cent. This is because
the US economy is the largest economy in the world. In
2017-18, India’s exports to US registered 10 per cent growth
amounting US $ 303 billion. On the other side of it India’s
imports from the US to India stood at US $ 460 billion,
resulting into a considerable trade deficit of US $ 157 billion.

The United States of America (USA) has been sharing very

strong and sound trade relations with India. The US always
Source: Prepared by the author from Table 1. gave emphasis on free, fair and reciprocal trade with India.
According to US trade officials the bilateral trade remained

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 ECONOMY

one component of the existing relationship between two Promotion Capital Goods Scheme (EPCGS) and Duty Free
largest democracies in the world. However, the trade deficit Imports for Exporters Program (DFES).
doesn’t favour the USA; with imports from India are nearly
two times more than exports to India. USA has trade deficit Recently, the US has challenged India’s export subsidy
with India [Chart 1] and as a result, USA trade war with programs especially (MEIS) in the World Trade Organization
India. (WTO). The US trade officials have come forward and
seeking consultations with Indian trade officials under
Keeping in mind the trade friction which US has with the umbrella of the WTO. Now India engaged itself in the
India, the President of the US publicly raised the issue of process of consultation with US trade officials to make
trade friction in regard to high import duty imposed by India’s position known to US. Indian trade officials are
Indian on the imports of motorcycles from the USA. The of the view that US trade officials may adopt a positive
bone of contention is three times announcement of import approach to resolve the trade friction with India.
duty on the single item. This step may result into reciprocal
duty the US may impose on Indian exports to USA. The major argument which the US trade officials have put
forward is that India has crossed the target of the US $
The commitment to the relationship between India and 1000 Per Capita Gross National Income (GNI) during the
USA is very strong. If a country had to point to a segment of last three consecutive years; hence is not eligible to extend
the relationship among both nations, where both countries export subsidies. While India’s trade officials are of the
has friction, it is certainly a area of trade. Accordingly there view that there is a clause in WTO’s Agreement in regard
is a concern in respect of considerable trade imbalance to Subsidies and Countervailing measures which authorise
which in these days of 2018 is on the rise. a country (India) for a period of 8 years for graduating
countries (crossing the US $ 1000 mark) to phase out export
The US officials have pin pointed that Indian subsidy subsidies. This is what India is going to place before US
schemes are harming the interest of US workers and trade officials. Added to this, India is very much hopeful
resulting into an uneven playing field. These include that US trade officials will take 8 years time frame clause
Merchandise Exports from India Scheme (MEIS); Export and accordingly, India would ensure the phasing out export
Oriented Units Program (EOUP); Sector Specific Schemes subsidies in given 8 years? However, there is confusion
(SSS) such as Electronics Hardware Technology Parks in respect of which year the 8 years time frame will be
Scheme (EHTPS); Special Economic Zones (EEZ); Export calculated. India is of the view that the reference year

76 The Management Accountant l October 2018 www.icmai.in

should be 2017 (rpt). Indian Government has pointed out to the US [Teaotia 2017].
that India has not violated any WTO rules and procedures
and hence, would respond to the USA’s application to the In 2017, US exports to India witnessed an increase of 18
WTO. per cent this reflects that market access in India is very open
and there are enormous opportunities for US exporters to
WTO‘s Dispute Settlement Process: enhance the volume of trade with India. This all shows
The very first step available for resolving the trade that India is no more security threat to USA. Hence it is
dispute is the seeking consultation. India is taking this inappropriate to apply these tariffs on India.
step and has started the process of consultations between
the trade officials of both the countries. If trade officials Silver lining:
between India and the USA failed in reaching out to a It is being said that comprehensive negotiations that
amicable solution based on mutually agreement through India and the US may take place and they have agreed
consultation, then the US trade officials may request the upon to work together to expand trade. This has become
WTO for appointing a dispute settlement panel to examine necessitated due to 100 per cent tariffs charged by the
the trade friction between both the countries. It is pertinent Indian Government on US goods. In order to facilitate the
to mention here that Indian Government has lost two cases comprehensive trade negations; Indian Government would
of disputes in regard to poultry and solar sector. Therefore, send an official team to work out the details and initiate
India has to be more careful and cautious this time. discussion on all persisting issues in respect of trade and
economic relations.
India’s Disappointment:
India has expressed its disappointment on the US References:
decision to imposed high import duties on certain steel 1. HT Business (2018); US launches auto import Probe;
and aluminium goods. India should have been exempted May 25, New Delhi.
from the duties as India is the strategic partner of the USA.
Accordingly, India has conveyed its concerns. Presently, 2. Rajan (2018); Rajan foreseer of Great Recession; HT
India is not a big exporter of these items to the USA. But Business; New Delhi; August 25.
in future India could emerge as an exporter of these items
to the USA. 3. Teaotia, R (2017); India Disappointed over US Steel and
Aluminium Duty; Indian Express; New Delhi; March 16.
Despite increased concern over the earlier announced
additional duties of 25 per cent and 10 per cent on steel 4. Times Business (2018); Global Trade war to hold back;
and aluminium respectively, under the critical Section 232 New Delhi; August 23;
provisions, the US Government has decided to investigate
whether strategic industries namely automobiles and 5. Times Business (2018); Trade Frictions puts Asian
automotive parts are critical to US strength as a country factories at risk; New Delhi; June 2.
are being undermined by Indian’s imports.
6. Times Business (2017); Indo-US Trade; New Delhi;
Recently, Washington Trade Daily (May 24, 2018) has March 19.
observed that US investigation will determine whether
imports from India such as automobiles, including 7. Times Nations (2017); Trade a big friction in India-US
SUVs, vans and light trucks and automotive parts are Ties; New Delhi; March 18.
becoming threatening to impair US national security as
defined in Section 232.

India is of the view that like other nations with whom

the USA has a strategic partner, India should have been
exempted such measures taken by the US government. It is
believed that such duties are imposed on security grounds
and some of the major trading partners have been excluded
from these duties. India should have been included in the [email protected]
list of exempted economies as India is not a security threat

www.icmai.in October 2018 l The Management Accountant 77

HR
DEMYSTIFYING
SUCCESS
AND HAPPINESS
IN PROFESSIONAL LIFE

78 The Management Accountant

www.icmai.in l October October
2018 2018 l The Management Accountant
www.icmai.in
78
 Debopam Chell
Assistant Vice President
Reliance Industries Limited
Mumbai

n professional career, sense accomplishment of goals, happiness Today most of the individuals
of achievement (Satisfaction) can be experienced in the journey, i.e. get into an organization through a
and worldly accomplishments while we become busy chasing these stringent screening procedure, where
(Possession) are two most goals. amongst so many eligible aspirants,
fundamental elements that drive only the best find a place. Besides
people across the globe. Though A few days back, I had an subject knowledge, applicants are
everyone wishes to remain thrilled and opportunity to visit one of my friend’s tested in a wide range of parameters,
committed for attaining one’s life goals, factory premises and speaking to including professional aptitude,
‘Happiness’ and ‘Success’ have different some of his employees. During my emotional intelligence, clarity of
connotation to different people, based informal chat with them, I sensed thought, ethical orientation and
on their perception. JRD Tata once that though the employees had many other psychological factors.
said, “No success or achievement in everything that my friend could have Any candidate worthy of selection is
material terms is worthwhile unless asked for, the enthusiasm among expected not only to score highest
it serves the needs or interests of team members seemed to have been marks in aggregate but also secure
the country and its people and is missing. When I countered them with threshold grade in each of the chosen
achieved by fair and honest means.” my apparent observation, there was attributes. However, it is really
So it is vital for today’s professionals a tall, bright guy who came forward baffling to observe that employees
to demystify these terms, comprehend and asked, “Sir, can you please become disillusioned even after such
their significance and make the right articulate, how does an employee superior staffing procedure. What
choice. In common parlance happiness excel in today’s outwardly challenging really transforms technically brilliant
is an inner feeling that evokes positive and competitive environment? In individuals into average achievers?
emotions and brightens up one’s addition to domain knowledge, what Let us go to the genesis of this weird
mood. It lifts one’s spirit and makes are the key areas that he needs to coincidence.
him energetic and motivated. On the focus for guaranteeing high intensity
other hand, success can be both, an performance year-on-year? In midst of Close scrutiny of workplaces reveal
internal or an external experience. A aggressive behaviour both from within that there are three central aspects
person who is down with prolonged and outside the organisation, how that remain on top of every employee’s
illness does everything possible and does he remain cool? What should he mind. Firstly, how to perform well
finally comes out of his miseries. A do to cope with occasional failure?” I on a consistent basis? Second, how
student seeking to crack IIT or IIM thanked him for being truthful. I am to constantly remain focused and
ultimately manages to get through convinced that these are legitimate motivated towards goal? And third,
the examination by his determined questions which haunt today’s how to get recognised for superior
efforts. These are some examples professionals. However to appreciate performance and be rewarded? This
of success evaluated internally. But the intricacies surrounding such contracted vision gets manifested in
people around us might quantify bewilderedness, employees require an their actions, e.g. regularly stretching
success externally. For example, a in-depth understanding of reality and in office beyond stipulated working
person’s bank balance, number of thoughtful application of mind. They hours; bringing office work back
houses or cars he owns or his societal need to discover their uniqueness home; not spending sufficient time
status can be construed as success and respond sensibly in ever changing with family members and friends;
from outside. To me, if success lies in surroundings. Let me elaborate. and doing anything and everything

www.icmai.in October 2018 l The Management Accountant 79

 HR

possible to impress superiors for this enthusiasm and positivity, create Selling Proposition). Remember, every
higher reward etc. At times this inner an enduring impression on higher one of us is blessed with some distinct
craving for recognition becomes so management. They start perceiving quality which differentiates us from
very intense that employees end up the individual as a budding leader. others. Look out for this uniqueness
doing something absolutely crazy. But there is a pitfall in this system in you. What do you do better than
Result being, they not only earn a as well. Sometimes, peers view such your peers and how can you use this
bad name for their desperate actions, enterprising efforts as unwarranted to help others? Silently observe, are
but also end up antagonizing many interference. They start disliking the you counted for out of box thinking?
stakeholders. And once this damage individual silently. Really, an agonizing Are you the go to man when your team
is done, his actions thereafter become situation for any employee. Therefore faces challenging targets or timelines?
expressions of struggle, causing while dealing with any situation or During crisis management, do others
immense pain and anxiety. Eventually, person, one needs to be extremely bank on your active involvement? In
employees become directionless, cautious. He can ill afford to create nutshell, prerequisite is, basis your
confused and depressed. They turn cracks within the team and spoil the interactions with various groups,
into mediocre performers. Now, is cohesiveness. He should neither give figure out that uniqueness and build
there anything that employees could an impression of being a dumb or an on it. Use your distinctiveness to
do differently? Let’s find out. over smart individual. In fact, office create positive experience among
dynamics is completely different from people. Always bear in mind, when
Imagine an employee carrying out the environment seen in educational you harness your exceptionality in
all the instructions of his manager institutions. To succeed here, achieving team goals, chances are you
diligently without even asking a employees have to strike a three way will be more successful.
single question. By doing so, he balance i.e.
earns the tag of being the most 2. Do a SWOT (Strength, Weakness,
trustworthy and obedient follower a) Constantly attempt at improving Opportunities and Threats) analysis.
but as his managerial skills are not his worth. To meet growing challenges It is bound to help you set your
manifested, every now and then this within the organisation, master new priorities. Focus improving on
timid approach sends out wrong skills, enhance competency and stay weak areas; dedicate time to build
signal. People start doubting both, future ready; additional skill sets. This conscious
his subject knowledge and courage effort will improve both, your efficiency
to express views independently. b) Maintain a harmonious and effectiveness at work. You will
Moreover, this hesitant conduct relationship with all stakeholders. To experience appreciation pouring in for
slowly suppresses the creative side of build a superior connect within the your appetite aimed at value addition.
the brain and limits his performance organisation, invest time and efforts However, it is equally important to
further. Finally he gets branded as in meaningful discussions, engage in be aware of one’s limitations. Surely,
an insignificant contributor. On the productive networking; and there would be something which is
contrary, if he speaks out very often beyond your reach. Do not try too
in every meetings and discussions, he c) Remain ambitious in actualizing hard and get disheartened. Researches
gets labelled of being an exhibitionist his potential without compromising on superior employee performance
- a domineering individual. His on individuality. To execute different reveal that one needs to work more
outspokenness and impromptu ideas ideas and not be cocooned by the fear often using his strengths and spend
make others uncomfortable. Candid of failure. relatively lesser time in fixing weak
views start getting viewed as arrogance areas. Thus, if you devote, say about
and irritate his immediate supervisor, I agree it is exceedingly difficult 75% of your time working with the
who construes such behaviour as to walk on such a tight rope; trying tide (using your strengths) and spend
direct threat to his authority. Another to balance between frying pan and 15% of your time for self-improvement
important aspect that we notice fire. But to remain as a significant (overcome weaknesses), you will have
in today’s vibrant organisations is contributor and yet be happy, one a better chance to succeed. Similarly,
that employees who regularly seize has to pursue a superior behavioural awareness of various opportunities
new initiatives are appreciated by blueprint which includes: and threats that lie ahead of you shall
supervisors. And when such initiatives provide critical inputs in shaping the
go beyond one’s area of expertise, 1. Discovering one’s USP (Unique direction of your voyage. Acknowledge

80 The Management Accountant l October 2018 www.icmai.in

them and plan your moves. encounters and support them important. Have regular feedback
wholeheartedly. No, that does not conversation with your subordinates.
3. Discover your AI (Adaptability mean surrendering meagrely to their Don’t just tell them what to do or
Index). How quickly you adapt to narrative. As professional, you must how it is to be done, instead, prepare
changing situations, shall help you express your viewpoint objectively; them to face tomorrow’s challenges
walk the road to success. Flexibility discuss and deliberate on available with grit and conviction. Ask probing
in navigating through unexpected options, evaluate pros & cons and questions. Let them explore solutions.
terrain adds character to one’s finally arrive at a collective decision. This will empower and bring out the
armour. Remember, victory does This exercise is not to score brownie best in them. Yes, at times they will
not necessarily come from following points over others when some of your falter but you can remind yourself of
one’s original track. Time and again, suggestions are accepted. Rather, the leadership lesson from a mother
it has been proven that success is it is an opportunity of enriching - helping her child to learn walking.
directly associated to one’s ability to yourself with alternate viewpoints Though initially the child tumbles and
learn from mistakes and improvise. It and implementing what is best for gets few bruises here and there, she
depends on one’s attitude to rise after the organization. Always keep in mind does not stop. She persuades him
every fall and if need be, choose a that, even if your proposal is rejected, to get up and try once more. Same
completely different path from the one you ought to remain cent percentage applies at workplace. Make sure your
set out earlier. What went well in past committed during implementation of subordinates benefit from your guided
will not guarantee similar success. It is the chosen alternative. way and not just the easy or the hard
simply an indicator to chalk out future way.
course of action. So step out of your In contrast, senior executives
comfort zone, try adapting to changes. who are already at the top of the 2. Surround yourself with people
Mature through life’s experiences and pyramid, my recommendation will be who are more skilful and adept.
evolve continuously. a tad different. When you choose to Although you might be principal
remain level headed and make yourself architects behind organisation’s stellar
4. Acceptability among peers go available to subordinates’ needs, you performances and growth so far, you
a long way in making our journey will benefit immensely. As you have can raise the bar of company’s success
interesting and rewarding. Instead of that invaluable experience of various further by surrounding yourself
being recognized as fierce competitor, accomplishments and setbacks, with people having different talents,
one needs to collaborate. I agree you have that much more insight to skills and experiences. Stop being
that individual aspirations will be share with junior colleagues. Words threatened by their virtues or level of
playing at the back of your mind but of wisdom and compassion that you proficiency. With your maturity, more
sometimes you ought to set aside display shall help them to be on a you channelize your energy to bring
your personal ambition and help sound footing. It would be worthwhile, synergy among varying intellectual
others genuinely (especially, when if you choose to: thoughts, better would be the result
they need the most), without feeling for the team in particular and the
the need of instant reciprocation. 1. Be a mentor. In one’s hectic work organisation in general. Make no
You ought to be prepared to sacrifice schedule - be it to increase plant’s mistake, when everyone performs well
personal milestones for achieving productivity or creating a superior your aspirations of going further up
collective good. After all what does a brand value for merchandise or the ladder automatically materializes.
TEAM stand for? It means - Together deciding on a new investment plan But if you are sceptic and enjoy being
Everyone Achieves More. Believe me, or increasing market capitalization surrounded by lesser mortals who
it is worth the efforts to build superior of your company or be it in any other hardly engage in free and candid
relationship - be trusted and counted fields within the organization, one professional discussions, you will lose
by stakeholders. very important aspect that often gets out on your effectiveness. Sooner or
ignored is creating the second line of later that cutting edge will disappear.
5. Dependability as viewed by leadership. Just like an ‘organization’, True, some of the subordinates shall
seniors, determines our progress at which is a ‘going concern’, there has to not have the courage to contradict
workplace. Make them believe in your be continuity in vision and direction your views but you ought to encourage
abilities. For continuance of their of leadership. Thus mentoring them for making constructive criticism.
trust, rise above past unpleasant subordinates become that much more Insipid behaviour of the yes men

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 HR

surrounding you shall definitely will be better equipped to respond engagement will be to remove their
hamper your growth; deter you from to future challenges at workplace. In illusions, cluttered belief and needless
attaining higher feats. the whole process you will reinvent worries. You need to support them in
yourself. discovering the truth and reach the
3. Let go the complex. Today it is cherished goal. At occasional failures
fairly common that managers and To put it differently, you must and grief stand by them; display that
subordinates work in different time practise a virtuous style of leadership. optimistic smile. Be the symbol of
zones, different offices or projects or Comprehend the work environment reassurance. Ensure well-being of
in different geographical locations and well. Act sometimes like ‘Ram’ and everyone around you. Be a real life
hence seldom meet. Communications sometimes like ‘Krishna’. If you are ‘Sarathi’.
with team are mostly through e-mail, the Ram of your team, you have to
telephone or video conferencing. fight the battle with full vigour. Being To sum up whether you are the
However, there can be no better the most skilful fighter in the team, leader or the junior most employees in
bonding than to have face to face entire responsibility rests on you to the organization, chose your action in
periodical interactions with the direct and lead from the front with following order:
team. When you sit down with them lesser skilled warriors. At each and
you can experience their ways of every step you need to strategize. a) do what is good for the
handling issues. You must agree that Regularly narrate the bigger picture, organization;
basis your past learning and belief remind teammates of their goal,
you have developed your personal articulate dos and don’ts and prepare b) do what is good for your team;
style of trouble shooting. But today’s their Standard Operating Procedures and the
problems can be more complex. Any (SOPs). Clearly communicate them on
cut and paste solutions in fixing them individual roles and responsibilities c) do what is good for you.
might not work. In the era of Internet and seek their understanding. What’s
of Things (IOT), Artificial Intelligence more important, empathize with less Once you internalize the above
(AI), Robotic Process Automations significant contributors and make sequence and demonstrate them in
(RPA), Chatbot Programmes (BOT), them feel important. Bind the team your actions and behaviour, you can
Augmented Reality vs. Virtual Reality together. On the other hand, if you rest assure that success and happiness
(AR/VR) etc., your method of mitigating are the Krishna of your team, you shall be your lifelong companion. I wish
problems, might be less effective. You already have the star performers in to summarize with my mantra. Work
should not think of your limitations your side. Reminding them of the with ‘PEACE’ i.e. Prepare well, Execute
and get scared. It is better to open up. roadmap or their day to day schedules meticulously, Achieve collectively,
Remember, accepting inadequacies in are not necessary. In fact, your Create congenial atmosphere and
front of your subordinates shall not continuous and explicit directives Emerge as a successful person with
make you look less competent. On might de-motivate them. This action inner happiness.
the contrary, when you offer yourself can suffocate and drive them away
to learn today’s stuff; it will help you from you. Remain conscious that you
garner greater respect. You can exert won’t engage in day to day counselling.
that extra push to become more This resource pool does not warrant [email protected]
techno savvy and feel confident. You that kind of micromanagement. Your

CORRIGENDUM
In the Article / Case Study "Jet Airways: A Voyage of Stress & Strain" published in The Management Accountant,
September 2018 issue written by CMA Dr. Sreehari Chava read as under on page 94, second para under the subhead
‘Passenger Load Factor’

PLF can be calculated by dividing the Passenger Seat Kilo Meters (PSKM) with the Available Seat Kilo Meters (ASKM).
Passenger Load Factor = (Passenger Seat Kilo Meters) / (Available Seat Kilo Meters)

82 The Management Accountant l October 2018 www.icmai.in

 STRATEGIC MANAGEMENT

FORMULATING BUSINESS STRATEGY

AND DRIVING BUSINESS
PERFORMANCES SUCCESSFULLY:
NEED TO LEARN A LOT FROM FORMULA 1
SPORT

CMA Mrutyunjaya Mohanty

Managing Partner
MSQUARE Management Consulting Services LLP
Bangalore

www.icmai.in October 2018 l The Management Accountant 83

 S T R AT E G I C M A N A G E M E N T

started following Formula1 (popularly called F1) after the KPIs and goals. Need to assign each activities to a Key
first F1 racing driver from India Narain Karthikeyan made Management Person (KMP) with target time line. Periodical
his debut in year 2005 with the team Jordan. Since than monitoring of progress with drive from the top and taking
I have been following the sport and have been to F1 circuit C-suite executives together in this process are important.
few times to watch the race live. Within no time I became Balance Score Card is a good tool in helping organization in
a fan to this novice sport and thoroughly enjoying it till translating high level strategy to something actionable and
now. Some times when some of my other choice sports measurable and achievable targets.
plays concurrently same time like cricket, tennis grand slam
andbadminton super series, I prefer not to miss out F1 race. # Team work: Pitstopsare one of the most tense and
exciting features of a F1 auto race. In fact, races are
You may be wondering how come I afford to miss out frequently won or lost because of pit stops and pit crews.
our most popular game of cricket to F1. Its’ not because In just a few seconds (typically 4-6 seconds) a huge number
of seer passion for the F1 sport but because of the things of actions are carried out by a pit crew concurrently as well
I have learned over the years from this sport which I have as sequentially.F1 pit stop activities are one of the best
effectively used in running the business & profession for example of team work.
various corporates. What are thosetraits than;
In business environment, team work fosters creativity and
# Strategy formulation: No team can win a F1 race learning. Creativity inspires employees to thrive together
unless they develop a robust and right strategy for the race. and work together in a team to provide solution to business
Each F1 teams’ principal along with crew and race drivers do problems. Novel ideas are generated by individuals while
lot of brain storming and drawing board scratch before the working in a team which is than brainstormed and result
race. They formulate strategy relating selectionof tyresout into effective solutions.Teamwork also allows helping
of permissible 8 to 9 types based on track temperature and sharing workload with another team member for the
and climatic condition. They develop strategy relating to common goal. Risk taking decisions are pretty easy when
re-fueling,fuel load, number of pit stop, investment in car employees are working in a team. Working in a team is
design, engineering upgradeand so on. The correct strategy inspiring, fun and bring pleasure. It boosts productivity.
can win the race for the team. Teamwork establishes and develops strong relationship
among co-workers. It teaches conflict resolution skills.
In business environment, firm needs to develop a robust
business strategy for success. Strategy reflects the firm’s # Accuracy & speed: The most challenging task for F1
strength, vulnerability, resources and opportunities. drivers and crews are maintaining accuracy and speed at
Formulating strategy forcorporate vision, growth, all the time. Little error during starting stage of the race or
competitive market positioning, resource allocation& while overtaking or any time during the race session in track
operational efficiencyis paramount importantto drive a or in pit lane entry and exit can throw the driver out of race
business successfully like winning a F1 race. competition. The margin of error is very low. Any error in
formulating a strategy or error in executing a right strategy
# Strategy execution: Mere formulating a great strategy can blow the team out of proportion.
and lacking in successful execution has no value. The
hardest part is executing those strategies whether it is Business simply can’t afford loss in quality or mistakes.
F1 sport or in business environment. On F1 race day team Improving accuracy in workplace is best achieved with a
principal with crew are on high concentration in executing careful and eagle-eyed companywide system of checks and
those strategies whether it is a pit stop decision, overtaking balances. Implementation of Total Quality Management
area, refueling timing (though this has been debarred since (TQM) can improve the accuracy. Continual training of
2010), replacing tyres and so on. The timing of calling these employees and empowering them with emphasis on their
shots are very critical. One or two right callswill land the strength can give them a feel good effect and can create
team into a winner. high quality product and service. Focus on execution of task
and speedy deliverables is what is expected from business
In business environment, strategy execution is a complex leaders like F1 drivers in race track.
process. Each company large or small, needs to master
crucial strategy execution skills. We need to break down
each strategy into action plan, operational activities, [email protected].

84 The Management Accountant l October 2018 www.icmai.in

 INFRASTRUCTURE
THE EMERGING
DIVERSITIES
IN FINANCIAL
PERFORMANCE OF BSNL

85 The Management Accountant

www.icmai.in l October October
2018 2018 l The Management Accountant
www.icmai.in
85
 INFRASTRUCTURE

Prof.M.Yadagiri
Dean B.Rajaram
Faculty of Commerce and Business Ph.D. Scholar
Management Department of Commerce
Telangana University Telangana University
Nizamabad Nizamabad

t is proposed to examine the emerging diversities Ratio of BSNL stands top with 0.65 points when compare
in financial performance of Bharat Sanchar Nigam to other service providers, in case of Turnover Ratio the
Limited. Generally, the financial analysis is the process Reliance Communications occupied the first position
of identifying the financial strengths and weaknesses of with 0.94 points, in case of Profitability position of the
the firm by properly establishing relationship between the companies, the Airtel takes top position with 0.92 points,
items of balance sheet and profit and loss account. It also Reliance ranked second with 0.85 points and BSNL ranked
helps in short-term and long-term forecasting and growth third with 0.63 points followed by Tata, Idea and MTNL.
can be identified with the help of financial performance
analysis. The financial performance analysis is the process Dr.M.Dhanabhakyam&Swapna Kurian (2012)3 in their
of determining the operating and financial characteristics of Research Article “Profitability Analysis of Bharath Sanchar
a firm from accounting and financial statements. The goal of Nigam Limited (Bsnl)” calculated the Net Profit Ratio, Return
such analysis is to determine the efficiency and performance On Assets Ratio, Return On Equity, Earning Per Share and
of firm’s management, as reflected in the financial records Cash Profit Ratio from the year 2001-02 to 2010-11 and
and reports. The analysis attempts to measure the firm’s concluded that the profitability ratios shows fluctuating
liquidity, profitability and other indicators that the business trends except last two years and the last two years ratios
is conducted in a rational and normal way; ensuring returns shows negative values except cash profit ratios.
to the shareholders to maintain at least its market value.
N.Swapna (2012) 4 in her Research Article
Review of Literature “Telecommunication Sector in India – An Analysis”
Eljelly (2004) 1 in his study empirically examined concluded that the telecom industry in India has witnessed
the relationship between profitability and liquidity, as a phenomenal and manifold growth over the recent years.
measured by current ratio and cash gap (cash conversion In the country, personalized telecom access has become an
cycle) on a sample of 929 joint stock companies in Saudi essential necessity of life for a growing number of people.
Arabia. Using correlation and regression analysis, Eljelly The telecom sector in India holds unlimited potential
found significant negative relationship between the firm’s talking of future growth. In the nation, both Public as well
profitability and liquidity level as measured by current ratio. as private firms are vigorously enhancing their technologies
This relationship is more pronounced for firms with high in a venture to take the telecom industry in the country to
current ratios and long cash conservation cycles. At the a much higher development.
industry level, however, he found that the cash conversation
cycle or the cash gap is of more importance as a measure Dr.PaporiBaruah&RashmiBaruah (2014)5 concluded in
of liquidity than current ratio that affects profitability. The their Research Article “Telecom Sector in India: Past, Present
firm size variable was also found to have significant effect and Future” that the growth and development of Telecom
on profitability at the industry level. sector of India has made it a key contributor in India’s
economic and social up gradation. Every functional division
R.Ananthi&R.Sriram(2012)2 in their Research Article on and service provider of Telecom Sector of the country is
“Performance Evaluation of Selected Telecom Companies trying to provide world class telecom infrastructure in its
in India – A taxonomy Approach” In their study they have area of operation to give services to its customers and so,
selected the Bharti Airtel, BSNL, Idea Cellular, MTNL, helping the country to progress in the global scenario.
Reliance Communications and Tata communications for
Evaluation of Performance and concluded that the Liquidity Anshu Gupta (2015)6 in his Research Article “Financial

86 The Management Accountant l October 2018 www.icmai.in

 Performance Evaluation of Telecommunication with special
reference to BSNL” concluded that the BSNL follows
The present studyaims to examine aggressive policy of managing liquidity & company has
the emerging diversities in financial sufficient liquidity assets to satisfy its short term liabilities.
performance of BSNL for the period After overhauling the five years balance sheets of BSNL and
from 2007-08 to 2016-17. Generally, all conditions, the author concluded that BSNL is facing the
capital problem because of which financial position of BSNL
the financial analysis is the process are affected. Financial position of BSNL was good in 2004
of identifying the financial strengths comparative to present year. The profits of the company are
and weaknesses of the firm by properly decreasing year by year due to maintaining high liquidity.
establishing relationship between the
items of balance sheet and profit and Ms.Pritish, Dr.TarunaSaxena (2015)7 in their Research
Article on “An Analysis of the Indian Telecom Industry”
loss account. It also helps in short- concluded that the Indian Telecom Industry contributes
term and long-term forecasting and significantly to the overall socioeconomic development of
growth can be identified with the help India. It is an essential tool for the growth of the nation
of financial performance analysis. The and the various telecom service providers offer voice and
financial performance analysis is the data services to the customers across different regions of
the country including both urban and rural areas thereby
process of determining the operating facilitating the growth of this industry.
and financial characteristics of a
firm from accounting and financial Objectives of the Study
statements. The goal of such analysis The following are the important objectives of the study;
is to determine the efficiency and
1. To identify the liquidity position of the company.
performance of firm’s management, as
reflected in the financial records and 2. To examine the solvency position of the BSNL.
reports. The analysis isan attempt
to measure the firm’s liquidity, 3. To study the profitability position of the company.
leverage, activity, profitability and
4. To assess the earning capacity of the BSNL.
other indicators that the business
is conducted in a rational and Methodology
normal way; ensuring returns to the The emerging dimensions of financial performance
shareholders to maintain at least its has made an attempt to assess the overall financial
market value. The average liquidity performance of the BSNL on the basis of liquidity
ratios,solvency ratios,activity ratios and profitability ratios
and solvency position of the BSNL is for the period of ten years commenced from 2007-08 to
satisfactory. The Debtors turnover and 2016-17. The relevant data collected from various issues of
working capital turnover ratios also BSNL annual reports.
satisfactory whereas the profitability
position in terms of return on assets, Scope of the study
This study is an attempt to focus on an assessment of
return on capital employed and earning the financial performance of the BSNL from the perspective
per share is not satisfactory. The study of the liquidity ratios, solvency ratios, activity ratios and
will help the stakeholders of the BSNL profitability ratios. The study period is ten years starting
to take the necessary steps to improve from the year 2007-08 to 2016-17.
the profitability position of the firm
Limitations of the study
The study is carried out with the help of secondary data.
The reliability of the results will be based on authenticity

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 INFRASTRUCTURE

of the collected data. Secondary data is mainly accessed year 2007-08 is2.5, it implies that for every one rupee of
due to lack of access to primary data related to financials current liabilities, current assets of two-and- half rupees are
of the company.The study is based on the data of BSNL; available to meet them. In other words, the current assets
therefore the generalisations drawn from the study may not are two-and –half times the current liabilities. The liquidity
be uniformly applicable to the entire telecom sector in India. position of the BSNL is good since there is margin of safety
In the analysis of data while calculating the percentages, of 150 percent to the creditors. The current ratio in the year
averages and other statistical measures the figures are 2008-09 is 2.29 it indicates that the firm is easily able to
to be approximated. In spite of enough care taken in meet its current liabilities as it is above the ideal current
approximation, sometimes the totals may not exactly agree. ratio though there was slight decrease in the current assets
from the previous year. The current ratio is 1.17 in the year
I. Liquidity Ratios
2009-10 and there was a decrease of 1.12 compare to its
Liquidity is a prerequisite for the very survival of a firm. previous year due to increase in the current liabilities and
The short term creditors of the firm are interested in the decrease in the current assets. The current ratio was further
short term solvency or liquidity of a firm. The liquidity declined to 0.98 in the year 2010-11. Then after, the current
ratios measure the ability of a firm to meet its short-term ratio has increased to 1.24 from 0.98 in the year 2011-12.
obligations and reflect the short term financial strength/ The current ratio in the year 2012-13 was 0.90 with 0.34
solvency of a firm. There are three important liquidity decrease due to increase in the short term borrowings
ratios namely current ratio, quick ratio and cash ratios. compare to its previous year. There was a slight increase
The liquidity ratios of BSNL for the period from 2007-08 to in the current ratio in the year 2013-14 and stood at 1.11
2016-17 are presented in the Table – 1 and again it was decreased to 0.78 in the year 2014-15. The
current ratio was increased to 1.09 in the year 2015-16 and
Table – 1: Liquidity Ratios of BSNL further declined to 0.82 in the year 2016-17.

Current The current ratios of the BSNL for the entire period of
Year Quick Ratio Cash Ratio
Ratio
the study were not consistent, there was ups and downs
2007-08 2.50 2.37 1.73
noticed. The average current ratio for the period under
review is 1.29. It shows that the company is able to meet its
2008-09 2.29 2.12 1.49 current liabilities with the available current assets. Since,
telecommunication is capital intensive industry, more
2009-10 1.17 1.06 0.63 funds are required to be invested in capital assets, in the
same way BSNL as a leading public sector telecom service
2010-11 0.98 0.84 0.09 provider was invested more funds in the capital assets. Due
to these reasons, there was volatility in the current ratios
2011-12 1.24 1.05 0.10 of the BSNL from year to year. The overall current ratio of
the BSNL for the period under review is satisfactory but it
2012-13 0.90 0.71 0.06 need to take measures to improve the current assets and
decrease the current liabilities.
2013-14 1.11 0.93 0.05
Quick Ratio: The quick ratio of the BSNL in the year
2014-15 0.78 0.62 0.05 2007-08 is 2.37 and it shows that the acid-test ratio of the
BSNL is more than the ideal quick ratio and also it is the
2015-16 1.09 0.85 0.06
more than the industry average. The quick ratio of the BSNL
in the year 2008-09 is 2.12, though it showed slight decline
2016-17 0.82 0.81 0.19
from the previous year, the company has more liquid assets
Average 1.29 1.14 0.44 to meet its current liabilities which is in satisfactory level. In
the year 2009-10, the quick ratio of the BSNL is 1.06, it is
Source: Various issues of BSNL Annual Reports. in satisfactory level and the company can meet its current
liabilities. The quick ratio in the year 2010-11 is 0.84 which
Findings and Discussion shows the decline in the liquid assets when compare to the
previous year and it is below the standard quick ratio. In the
Current Ratio:The current ratio of the BSNL in the year 2011-12, the quick ratio of the BSNL is 1.05 the quick

88 The Management Accountant l October 2018 www.icmai.in

assets are enough to meet the current liabilities which are Debt Interest
Debt Proprietary
in satisfactory level. The quick ratios of the BSNL from the Year Equity Coverage
Ratio Ratio
year 2012-13 to 2016-17 are below the standard level that Ratio Ratio
shows the liquid assets are decreasing and not sufficient to
2009-10 0.57 0.019 0.98 -5.25
meet its current liabilities. However, the average quick ratio
of the BSNL for the entire period under review is 1.14 which 2010-11 0.37 0.023 0.98 -15.87
is considered satisfactory. Over the years the company has
built up a strong ethics of liquidity and its highly liquid 2011-12 0.37 0.162 0.86 -46.91
components of current assets have been more than the
2012-13 0.42 0.198 0.83 -21.63
illiquid items. This gives the confidence to both the insiders
who deal with the company on day-to-day basis and the 2013-14 0.46 0.206 0.83 -31.44
vendors and the suppliers.
2014-15 0.51 0.079 0.93 -16.62
Cash Ratio: The cash ratiosof the BSNL in the year
2015-16 0.51 0.189 0.84 -6.67
2007-08and 2008-09 are1.73 and 1.49. In these two years
it shows that the company is maintaining more cash and 2016-17 0.30 0.143 0.87 -31.65
equivalent of cash balances to meet its current liabilities.
From the year 2009-10 onwards there is a continuous Average 0.41 0.112 0.90 -16.60
decline of cash ratios having less than 1 in the remaining Source: Various issues of BSNL Annual Reports.
the period of the study. It indicate that the company is not
having sufficient liquid cash and cash equivalent to meet Debt Ratio:It is observed that the debt ratios of the
its current liabilities.The average cash ratio of the BSNL for BSNL are moved from 0.30 to 0.57 in the entire period of
the entire period under review is 0.44 which shows that the the study with an average of 0.41. It shows that almost in
company’s liquid cash is not sufficient to pay off its short all years the debt ratio is below 0.50 except the years 2009-
term creditors, this leads the company to go for short term 10, 2014-15 and 2015-16. Even theses three years also it is
borrowings. much near 0.50. Therefore it can be concluded that the firm
is less risky and has twice as many assets as liabilities. It
II.Leverage /Solvency Ratios
means the BSNL liabilities are less than 50 percent of its
The second category of financial ratios is leverage or total assets. The average debt ratio of the BSNL during the
solvency or capital structure ratios. The long-term solvency study period is 0.41 or 41 percent which is below the ideal
of a firm can be examined by using leverage or capital debt ratio. Thus the solvency position of the BSNL is very
structure ratios. The leverage or capital structure ratios may good. The telecommunications is capital intensive industry
be defined as financial ratios which throw light on the long- and most of the telecom service providers have more debt
term solvency of a firm as reflected in its ability to assure burden. But the debt burden of BSNL is very low when
the long-term creditors with regard to periodic payment compare to other telecom operators in the country and
of interest during the period of the loan, repayment of also it is very low when compared with the total industry
principal amount on maturity or predetermined instalments average8.
at due dates. Thedata related to the important leverage
ratios of the firm such as debt ratio, debt-equity ratio, Debt - Equity Ratio: It is noticed that, in the entire period
interest coverage ratio and proprietary ratio are presented of the study the debt equity ratios are moved from 0.02 to
in the Table – 2. 0.21. It shows a trend of much low debt equity ratios. It
means that the BSNL has been much friendly in financing
Table – 2: Leverage Ratios of BSNL its growth with debt and more aggressive in financing
its growth with equity. The average debt equity ratio is
Debt Interest low at 0.11. This is an indication of improper debt equity
Debt Proprietary
Year Equity Coverage
Ratio Ratio management. As the BSNL is cent percent Government
Ratio Ratio
owned company, the government waiving the loan amount
2007-08 0.30 0.053 0.95 6.16 taken from the government. Thus the debt liability of
BSNL abnormally declining and the proportionately equity
2008-09 0.32 0.046 0.96 3.87 has been increasing. During financial year 2013-14, the
loan from the Government of India amounting to Rs.98,

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 INFRASTRUCTURE

318 lakh was waived off and adjusted against capital Table – 3: Activity Ratios of BSNL
reserve under previous GAAP. Under Indian AS, since the
Debtors Creditors Net Asset Working
shareholder has forgiven the debt, it is likely that the Year turnover Turnover Turnover capital
Government has acted in the capacity of a shareholder and ratio ratio Ratio turnover
therefore the forgiveness of debt should be treated as a
capital transaction. Accordingly, the debt forgiven has been 2007-08 6.96 3.94 0.41 1.08
reclassified to other equity as on transition date amounting 2008-09 7.59 3.36 0.39 1.12
to Rs. 98,318 lakh. This has resulted in decrease in capital
reserve amounting to Rs. 98,318 lakh and corresponding 2009-10 6.75 2.53 0.37 4.84
increase in other equity amounting to Rs.98,318 lakh as on
transition date. 2010-11 4.69 2.53 0.37 -14.17

2011-12 7.05 2.73 0.34 8.26

Interest Coverage Ratio: The interest coverage ratios
of the BSNL for the year 2007-08 and 2008-09 are 6.16 2012-13 9.19 2.78 0.36 -9.39
and 3.87 respectively. It means that the BSNL having better
financial health as the company is more capable of meeting 2013-14 10.13 3.27 0.41 21.87
its interest obligations from operating earnings in 2007-08 2014-15 12.31 3.39 0.56 -5.16
and 2008-09. From the year 2009-10 onwards the interest
coverage ratios are negative moving from -5.25 in the year 2015-16 12.59 4.37 0.64 28.24
2009-10 to -31.65 in the year 2016-17. The average interest
2016-17 10.18 4.32 0.28 -9.06
coverage ratio is also negative with 16.60. This situation
indicates that the ability to meet interest expenses may be Average 8.74 3.32 0.41 2.76
questionable and it can be concluded that the BSNL is not
generating sufficient revenues to satisfy interest expenses. Source: Various issues of BSNL Annual Reports

Proprietary Ratio: During the period of the study Debtors Turnover Ratio: It is noticed that the debtors’
from the year 2007-08 to 2016-17, it is observed that the turnover ratios are moved from the lowest of 4.69 in the
proprietary ratios are moved from 0.83 to 0.98 with an year 2010-11 to the highest 12.59 in the year 2015-16 with
average of 0.90. It shows that the entire period of the study an average of 8.74. In the year 2007-08, the debtor turnover
the BSNL having the proprietary ratio between 0.75 and ratio is 6.96 and it was increased to 7.59 in the year 2008-
less than 1. Therefore, it can be concluded that there are no 09. Whereas the ratio was decreased by 10.97 percent and
outside liabilities to the BSNL and all the funds employed 30.54 percent in the year 2009-10 and 2010-11 respectively.
are those of BSNL shareholders. Thus this is the main cause There was an abnormal increase in the year 2011-12 by 50.27
for lower rate of dividend payable to the shareholders of percent. The upward trend was continued year after year
BSNL in every year. up to 2015-16. But in the year 2016-17 the debtors turnover
ratio is stood at 10.18 by decreasing 19.16 percent when
III. Activity Ratios
compared with the its previous year 2015-16. As the average
Activity ratios are concerned with measuring the efficiency debtors turnover ratio is 8.74 which is considered good for
in asset management. These ratios are also called efficiency the BSNL during the period under review. Therefore, it can
ratios or asset utilization ratios. The efficiency with which be concluded that the BSNL collecting their receivables
the assets are used would be reflected in the speed and more frequently throughout the year.
rapidly with which assets are converted in to sales. Turnover
is the primary mode for measuring the extent of efficient Creditors Turnover Ratio: It is observed from the
employment of assets by relating the assets to sales. An creditors’ turnover ratios of the above table that, the
activity ratio may, therefore be defined as a test of the creditors’ turnover ratios are ranged from 2.53 in the year
relationship between sales (more appropriately with cost 2010-11 to 4.37 in the year 2015-16 during the period
of sales) and the various assets of a firm. Depending upon under review. It is also noticed that the ten years average
the various types of assets, there are various types of of creditors turnover ratio is 3.32, which indicates that
activity ratios. The data related to importantactivity ratiosof the BSNL enjoy the credit period in paying creditors. This
debtors’ turnover, creditors turnover, net assets turnover situation enhance the credit worthiness of the organization.
and working capital turnover areshown in the Table – 3. The creditors’ turnover ratio is 3.94 in the year 2007-08

90 The Management Accountant l October 2018 www.icmai.in

but it was declined by 14.59 percent and 24.81 percent in IV.Profitability Ratios
the year 2008-09 and 2009-10 respectively. It is noticed The profitability reflects the final result of the business
that there was no change in the creditors’ turnover ratio in operations. Profit earning is considered essential for the
the year 2010-11. However this ratio was increased by 7.75 survival of the business. There are two types of profitability
percent and stood at 2.73 in the year 2011-12. The same ratios profit margin ratio and the rate of return ratios. Profit
increasing trend was continued up to 2015-16 and the ratios margin ratios shows the relationship between profit and
ranged from 2.78 to 4.37. But there was a slight decline by sales. Popular profit margin ratios are gross profit margin
1.07 percent in the year 2016-17 and the ratio stood at 4.32. and net profit margin ratio. Rate of return ratio reflects
between profit and investment. The relevant data concern
Net Assets Turnover Ratio: The net assets turnover ratio to return on assets and return on capital employed along
of the BSNL is ranged from 0.28 to 0.64 with an average of with earnings per share is presented in the Table – 4.
0.41. It means the BSNL is financing its net assets out of its
own funds has the average ratio is 0.41. And the balance of Table – 4: Profitability Ratios of BSNL
own funds to the tune of 0.59 are used from working capital
also. Hence, the stakeholders in this regard not favourable Return on Earnings Per
Return on
to the composition of financing the assets. In the year 2015- Year Capital Share
Assets
16, the net assets turnover ratio is much favourable at 0.64 Employed (In Rs.)
when compared with the remaining all other years of the
2007-08 3.23 5.72 4.43
study period. It shows that 64 percent of the own funds
of the BSNL financing its net assets and the remaining 36 2008-09 0.62 1.85 1.15
percent are used for working capital. Similarly in the year
2009-10 -2.04 -2.09 -3.65
2014-15, 56 percent of own funds used for financing its
fixed assets and remaining 44 percent used for working 2010-11 -7.64 -7.56 -12.77
capital purpose. In all remaining years the funds were used 2011-12 -10.94 -10.44 -17.7
less than 50 percent for financing its fixed assets and more
than 50 percent funds used for its working capital purpose. 2012-13 -10.06 -9.97 -15.77
Therefore it can be said that this is not a happy situation 2013-14 -9.77 -9.95 -14.04
because the real assets created by the company purely out
2014-15 -13.77 -16.15 -16.47
of internal accruals and surpluses will bring in considerable
appreciation in the market value of these assets. Thereby 2015-16 -7.56 -6.94 -7.76
the company will be in a not good position to tide over any 2016-17 -5.87 -4.15 -9.59
extreme though unlikely, situation a future date.
Average -6.38 -5.97 -9.22
Working Capital Turnover Ratio:It is noticed from Source: Various issues of BSNL Annual Reports.
the working capital turnover ratios of the table that
the ratios are more volatile during the period of the ten Return on Assets: The return of assets ratios of the BSNL
years study. The highest working capital turnover ratio indicates that only in the year 2007-08, it was 3.23 percent,
is 28.24 in the year 2015-16 which is increased by 647.19 then after it was declined to 0.62 percent in the year 2008-
percent when compared with its previous year 2014-15. As 09. Then after from the year 2009-10 onwards the return
against this the lowest working capital turnover is -14.17 on assets ratios of the BSNL are negative moved from
with the decrease of 392.73 percent in the year 2010-11. -2.04 to -13.77 with an average of -6.38. Therefore it can
Therefore it can be concluded that the working capital be concluded that almost in every year the BSNL incurring
turnover ratios are moved from the lowest of -14.17 to the heavy losses due to over capitalization and underutilization
highest of 28.24 during the period under review. Though of the existing assets.
there was a significant fluctuations the average working
capital turnover is 2.76, which indicates a good sign for the Return of Capital Employed:The return on capital
effective utilization of working capital in the BSNL and it employed of the BSNL is good at 5.72 in the year 2007-08.
also indicates that the BSNL is actively generating sales Immediately in the year 2008-09 it was drastically declined
from its working capital, which is a positive indicator of by -67.68 percent. From the year 2009-10 onwards there
future prospects of the orgnisation. was a continuous decline up to 2016-17. The average return
on capital employed of BSNL registered at -5.97 during the

www.icmai.in October 2018 l The Management Accountant 91

 INFRASTRUCTURE

period of the study. The return on capital employed ratios employed ratio year after year otherwise the company
are moved from -2.09 percent in the year 2009-10 to -16.15 would not survive successfully.The average earning per
percent in the year 2014-15. Then after in the year 2015-16 share during the period of the study is negative. It indicates
there was an increase of 57.02 percent, however the ratio is that the poor profitability of the company. Thus, it is
-6.94 only. Similarly there was a growth of 40.16 in the year suggested that the BSNL has to introduce the necessary
2016-17 even though the return on capital employed in that measures for increasing its profit making capacity in the
year was -4.15. Therefore it is observed that from the year near future, otherwise it may not survive for a long run with
2015-16 onwards the company trying to improve the return this declined trend of EPS.
on capital employed slowly. There is urgent need for turning
for return on capital employed from negative to positive References:
and increase the return on capital employed ratio year after 1. Eljelly, A. (2004). “Liquidity – profitability tradeoff: an
year otherwise the company would not survive successfully. empirical investigation in an emerging market “.IJCM,14(2)

Earnings per Share: It is noticed that in the year 2007- 2. R.Ananthi and R.Sriram(January-March,2012) “Performance
08, the earning per share of the BSNL is 4.43. Then after Evaluation of Selected Telecom Companies in India – A Taxonomy
in the year 2008-09 it was declined by 74.04 percent and Approach” Journal of Contemporary Research in Management
stood at 1.15. From the year 2009-10 onwards the earning
per share of BSNL has continuously declined year after 3. Dr.M.Dhanabhakyam and Swapna Kurian (March-2012)
year with -3.65 to -16.47 percent in the year 2014-15 with “Profitability Analysis of Bharath Sanchar Nigam Limited (Bsnl)”
the increased growth rate. The average earning per share Indian Journal of Applied Research, Ahmedabad,Volume:1,Issue:6
during the period of the study registered at -9.22 percent. ISSN-2249-555X
It indicates that the poor profitability of the company. Thus,
it is suggested that the BSNL has introduced the necessary 4. N. Swapna (7-8th April-2012) MPGI National Multi Conference
measures for increasing its profit making capacity in the 2012 “Advancement in Electronics & Telecommunication
near future, otherwise it may not survive for a long run with Engineering” International Journal of Computer Applications®
this declined trend of EPS. (IJCA) ISSN: 0975 – 8887.

Conclusions: 5. Dr.PaporiBaruah and RashmiBaruah (November-2014)

The overall liquidity position of the BSNL is satisfactory “Telecom Sector in India: Past, Present and Future” International
during the entire period of the study.The solvency position Journal of Humanities & Social Science Studies (IJHSSS) ISSN:
of the BSNL is very good since its debt burden is low. 2349-6959, Volume-I, Issue-III, Page No. 147-156, Scholar
The debt liability of BSNL abnormally declining and the Publications, Karimganj, Assam, India.
proportionately equity has been increasing.It can be
concluded that the BSNL is not generating sufficient 6. Anush Gupta(April-2015) “Financial Performance Evaluation
revenues to satisfy interest expenses.It is also observed of Telecommunication with special reference to BSNL” SSRG-
that the BSNL collecting their receivables more frequently International Journal of Humanities and Social Science,
throughout the year.The ten years average of creditors ISSN:2394-2703.
turnover ratio is 3.32, which indicates that the BSNL enjoy
the credit period in paying creditors. This situation enhance 7. A Research Article by ‘Ms.Pritish, Dr.TarunaSaxena’ published
the credit worthiness of the organization.The real assets in IOSR Journal of Business and Management (IOSR-JBM)
created by the company purely out of internal accruals e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 17, Issue 10.Ver.II
and surpluses will bring in considerable appreciation in the (Oct.2015), PP 35-42 www.iosrjournals.org
market value of these assets.BSNL is actively generating
sales from its working capital, which is a positive indicator 8. RNCOS, Mobile Industr y Research( Tuesday,
of future prospects of the orgnisation.Almost in every year 22ndJanuary-2008) ”Rural India New Playground for Mobile
the BSNL incurring heavy losses due to over capitalization Industry Players”
and underutilization of the existing assets.It is noticed
that from the year 2015-16 onwards the company trying 9. Corporate Catalyst India(August-2013) “A brief Report on
to improve the return on capital employed slowly.There Telecom Sector in India”
is a urgent need to turn for return on capital employed
from negative to positive and increase the return on capital 10. Telecom Regulatory Authority of India’s Study Paper on

92 The Management Accountant l October 2018 www.icmai.in

Shareholding Pattern, Financing Pattern and Capital Structure of Foot Note
Indian Private Telecom Access Service Providers 8th September, 1
Eljelly, A. (2004). “Liquidity – profitability tradeoff: an empirical
2016. investigation in an emerging market “.IJCM,14(2)

11. Telecom Regulatory Authority of India “A Twenty year of 2

A Research Article by ‘R.Ananthi ,R.Sriram’ published in Journal
Odyssey 1997-2017” Report prepared by National Institute of of Contemporary Research In Management. January -March,
Public Finance and Policy, New Delhi-110067. 2012.

12. TRAI Quarterly Report, The Indian Telecom Services 3

A Research Article by Dr.M.Dhanabhakyam&Swapna Kurian
Performance Indicators July - September, 2017, New Delhi, India, published in Indian Journal of Applied Research Volume: 1 I
28th December, 2017. Issue : 6 I March 2012 ISSN – 2249-555X www.ijar.in

13. Economic Survey 2016-17 Vol2, Chapter -08 – Industry and 4

A Research Article by N.Swapna MPGI National Multi
Infrastructure, Telecom sector, P. No.207-209. Conference 2012 (MPGINMC-2012)

14. IBEF, Telecommunications-December-2017.www.ibef.org 5.

7-8 April, 2012 “Advancement in Electronics & Telecommunication
Engineering” Proceedings published by International Journal of
15. Department of Telecommunications, Achievements of Computer Applications® (IJCA)ISSN: 0975 – 8887
telecom sector in financial year 2016-17.
6
A Research Article by Dr.PaporiBaruah&RashmiBaruah ,
16. Department of Telecommunications, Progress during the last International Journal of Humanities & Social Science Studies
three years (2014-17). (IJHSSS) A Peer-Reviewed Bi-monthly Bi-lingual Research
Journal ISSN: 2349-6959 (Online), ISSN: 2349-6711 (Print)
17. Nishith Desai Associates, The Indian Telecom Sector – Legal Volume-I, Issue-III, November 2014, Page No. 147-156 Published
and Regulatory Framework, July 2014. by Scholar Publications, Karimganj, Assam, India, 788711
Website: http://www.ijhsss.com
18. TRAI Annual Reports 2007-08 to 2016-17.
7
A Research Article by Anshu Gupta published in SSRG
19. Deloitte & Aegis, Broadband The lifeline of Digital India, International Journal of Humanities and Social Science (SSRG-
November 2014. IJHSS) – EFES April 2015 ISSN: 2394 – 2703 http://www.
internationaljournalssrg.org
20. DoT, Annual Reports 2007-08 to 2016-17.
8
A Research Article by ‘Ms.Pritish, Dr.TarunaSaxena’ published
21. Manas Bhattacharya, IES, Deputy Director General in IOSR Journal of Business and Management (IOSR-JBM)
(Finance), Department of Telecommunications, Ministry of e-ISSN: 2278-487X, p-ISSN: 2319-7668. Volume 17, Issue 10.Ver.
Communications & IT, Government of India; Telecom Sector in II (Oct.2015), PP 35-42 www.iosrjournals.org
India : Vision 2020.
9
As per the reply dated 21-07-2017 submitted to the question
Websites:
of honorable Member of Parliament, RajyaSabha, there is a
1.www.bsnl.co.in total Debt of Rs.6,10,475 crores owed to different financial
institutions and banks by the various telecom operators out
2. www.dot.gov.in of which BSNL has Rs.19,630 crores only having 3.22 percent
of total debt of the industry.
3. www.trai.gov.in

4. www.deloitte.com/in

5. www.icra.in
[email protected].
6. www.pwc.in [email protected].

www.icmai.in October 2018 l The Management Accountant 93

LEGAL

CCI APPROVES:
WALMART–
FLIPKART DEAL

Richa Jain
Research Associate
Competition Commission of India
Delhi

94 The Management Accountant l October 2018 www.icmai.in

 n 8th of August, 2018, the Competition Commission Furthermore, the Commission noted that the proposed
of India (The Commission/ CCI) vide it order (C.R. combination is not resulting in elimination of any major
No. C-2018/05/571) approved the acquisition of player in the relevant market as it will not only preserve
Flipkart Private Limited (Flipkart), (an investment holding a successful e-commerce platform but also enhance the
company incorporated in Singapore, engaged in e-commerce financial strength of the platform enablingit to compete
marketplaces facilitating trade between customers and effectively with competitors in a dynamic e-commerce
sellers)by Wal-Mart International Holdings, Inc. (Walmart), market. It was also noted that 100% FDI under automatic
(an American multinational retail corporation that operates route is permitted in marketplace model of e-commerce and
a chain of hypermarkets, discount department stores, and B2B segment, which is an encouraging factor for entry of
grocery stores, a subsidiary of Walmart Inc.) for acquisition new players.
between 51% and 77% of the outstanding shares of Flipkart.
In this case Commission also received representations
In the present matter, CCI received a notice under sub- from trade associations, traders/retailers, etc., who
section (2) of Section 61 of the Competition Act, 2002 (the expressed concerns on compliance of FDI norms
Act) by Walmart and was posed with the issue to examine byFlipkart, and the impact of theproposed combination
if the proposed Walmart-Flipkart combination was altering on employment, entrepreneurship, small and mediumscale
the competition both in the horizontal and vertical markets. enterprises, retailing, etc.

The Commission under its legal mandate is empowered The Commission noted that majority of the concerns
to assess and regulate combinations (i.e. mergers, expressed in therepresentations had no nexus to the
amalgamations and acquisitions) as per the provisions of competition dimension ofthe proposed combination and
the Act as opposed anti-competitive agreements and abuse that the issues falling beyond the scope of the Act, cannot
of dominance conduct which are prohibited by the Act. bea subject matter of examination by the Commission.
The commission is empowered to analyseif, the proposed
combination alters the competition in both the horizontal
Foot Note
and vertical markets based on the parameters given section
20(4) of the Act (including market share, barriers to entry, 1
(Disclaimer: The facts/opinions expressed in the paper are
extent of vertical integration, extent of competition likely to solely of the author and do not necessarily reflect the views of
remain after the combination, etc.), if it does not, then it is the Competition Commission. The detailed order can be accessed
said to pose no harm in the competitive market. at https://www.cci.gov.in/sites/default/files/Notice_order_
document/Walmart%20PDF.pdf.)
In competition law language, a horizontal overlap is a
merger between two competitors in similar line of business, 2
Section 6 (2) Subject to the provisions contained in sub-section
while a vertical overlap is a merger between a manufacturer (1), any person or enterprise, who or which proposes to enter into
and distributor, who are at different stages of production a combination, shall give notice to the Commission, in the form
chain in different markets. Needless to say, the Walmart- as may be specified, and the fee which may be determined, by
Flipkart deal has a horizontal overlap as both the companies regulations, disclosing the details of the proposed combination,
are in the wholesale cash and carry wholesale trading of within thirty days of— (a) approval of the proposal relating to
goods (B2B market). merger or amalgamation…. (b) execution of any agreement or
other document for acquisition referred to in clause (a) of section
The Commission in the present matter observed that the 5.
proposed combination is not likely to have an appreciable
adverse effect on competition in India and therefore, the
same was approved in terms of Section 31(1) of the Act.
The Commission observed that the parties are neither close
competitors in the B2B sales nor have acombined market
share that raises competition concern. Also the market
share of Walmart in B2B sales in India is less than half a
percent and thus, the incremental changes on account of [email protected]
the proposed combination are insignificant.

www.icmai.in October 2018 l The Management Accountant 95

CORPORATE GOVERNANCE

CORPORATE GOVERNANCE
DISCLOSURE PRACTICES IN
PHARMA
AND
FMCG SECTOR COMPANIES

CMA Dr.Meenu Maheshwari

Assistant Professor
and
Principal Investigator UGC-MRP
Department of Commerce and
Management
University of Kota, Kota

96 The Management Accountant l October 2018 www.icmai.in

 orporate Governance has become an important policy
issue in both developed and developing countries. Corporate
Governance is a system by which business corporations are
Present Corporate Governance norms directed and controlled. It aims at attaining accountability,
for all listed companiesin India are transparency, independence and fairness in the business.
regulated by the Companies Act 2103
and SEBI (Listing Obligations and Maheshwari, Meenu (2018) in her research paper
Disclosure Requirements) Regulations writes that “It ensures commitment to values and ethical
conduct of business, transparency in business transactions,
2015. This study presents Corporate statutory and legal compliances, adequate disclosures and
Governance Disclosure Practices effective decision making to achieve corporate objectives.”
oftwo Pharma sector companies
and two FMCG sectorcompanies According to SEBI,2003, Corporate Governance is
included in BSE SENSEX (CIPLA Ltd., about ethical conduct in business.Corporate Governance
deals with conducting the affairs of a company such that
SPIL, HUL and ITC LTD.). The main there is fairness to all stakeholders and that its actions
objectives of the study is to construct benefit the greatest number of stakeholders. It is about
Corporate Governance Disclosure openness, integrity and accountability. Present Corporate
index andto make comparative Governance norms for all listed companies are regulated
analysis of Corporate Governance by the Companies Act 2013. In India SEBI is the regulatory
body of the security market, therefore a listed company is
Disclosure Practices by using index also bound to comply with the requirements of the listing
score among the sampled companies. agreement.
The study reveals that degree of
Corporate Governance Disclosure Maheshwari, Meenu (2018) in her article states that,
Practices is excellent in all sampled “Corporate Governance helps in establishing a system
where a director is showered with duties and responsibilities
companies. All Pharmaand FMCG of the affairs of the company because Responsibility,
Sector companies included in BSE Transparency, Fairness and Accountability are the four vital
SENSEX fulfilled almost mandatory pillars for strong Corporate Governance.”
requirements in all sub-indices prepared
as per SEBI (Listing Obligations and Now, SEBI notified on 2/9/2015 in the extraordinary
Gazette of India the Listing Obligation and Disclosure
Disclosure Requirements) Regulations Requirements Regulations, 2015 (LODR). So, all the
2015.Findings also showthat FMCG listed companies are now governed by the said (LODR)
sector companies secure more score Regulations,2015. Further, it is also necessary to mention
incomparison to Pharma sector. The here that every listed company should comply with the
ITC Ltd. scored the highest score 96in stricter provisions of Companies Act, 2013 and SEBI (Listing
Obligation and Disclosure Requirement) Regulations, 2015.
Corporate Governance Index. The study
suggests thatcompanies should have Review of Literature:
post board meeting follow up system Rajyalakshmi and Memdani (2014) made a comparative
and compliances of the board procedure. analysis of disclosure across companies listed in India in
The companies while formulating their manufacturing and software sector. The study revealed that
software companies are performing better. According to the
policies and strategies must consider study the reason for the low score of manufacturing sector
social values along with their to a certain could be high percentage of shareholding held
economic goals. by promoters of the companies. Roles and responsibilities of
the audit committee are not well defined and in most cases
chairman of the audit committee is not an independent
director.

www.icmai.in October 2018 l The Management Accountant 97

 C O R P O R AT E G O V E R N A N C E

Muhammad et al. (2016) showed the effect of Corporate sampled companies.

Governance practices on firms’ performance in Pakistan.
Sample size and collection of data:
For this purpose they studied three variable of Corporate
Governance such as board size, board composition, CEO The sample comprises two Pharma sector companies
duality and Audit Committee of 80 non- financial firms and two FMCG sector companies included in BSE SENSEX.
listed on Karachi Stock Exchange Pakistan during 2010- The year 2016-17 has been taken as the study period. This
2014 and found that board size and audit committee are study is based on the secondary data only. All data and
positively related to the firms performance and CEO duality information have been collected from annual reports of
and Board Composition are negatively related to the firm company’s website, journals and magazines etc.
performance.
Hypotheses:
Gurarda et al. (2016) estimate the determinants of Following hypotheses have been formulated to test
Corporate Governance rating for 22 publicly traded Turkish whether these four companies show compliance with
companies with a focus on ownership structure. Their SEBI (Listing Obligation and Disclosure Requirements)
results show that company earnings, financial risk and firm Regulations 2015 practices.
size positively influence the Corporate Governance Rating.
They also found that family ownership has a negative and H10: CIPLA Ltd., SPIL, HUL and ITC LTD do not show
foreign ownership has a positive impact on Corporate compliance with SEBI (Listing Obligation and Disclosure
Governance Rating score. Requirements) Regulations 2015 practices in year 2016-
17.
Thapar and Sharma (2017) intended to examine the
concept of Corporate Governance in India with regard H11: CIPLA Ltd., SPIL, HUL and ITC LTD comply with SEBI
to the provisions of Corporate Governance under the (Listing Obligation and Disclosure Requirements)
companies Act 2013. Their paper highlighted the importance Regulations 2015 practices in year 2016-17.
and need of Corporate Governance in India and discussed
the important case laws which contributed immensely in Interpretation and Analysis:
the emergence of Corporate Governance in India. Authors The research focuses on comparative analysis of
revealed that the corporate practices in India emphasize Corporate Governance Disclosure Practices between two
the functions of audit and finances that have legal, moral Pharma Sector and two FMCG Sector Companies listed
and ethical implications for the business and it has impact in BSE SENSEX for the financial year 2016-17. For this
on the shareholders. purpose company’s performance has been measured
against certain governance parameter. The research has
Research Methodology: been undertaken to assess the level of compliance to key
Objectives of the study: governance parameter in these companies in tune with
mandatory and non- mandatory requirements under the
The main objectives of the study are: Companies Act 2013 and the SEBI (Listing Obligations and
Disclosure Requirements) Regulations 2015. To evaluate
1) To lay down the Corporate Governance Disclosure how much these companies are following governance
Practices in Indian Corporate Pharma and FMCG standards, a 100 point Index consisting of 18 parameter
sector companies (Two Pharma Sector Companies and with their sub parameters has been framed, whereby
two FMCG Sector Companies included in BSE SENSEX an appropriate weightage in terms of points has been
viz. CIPLA Ltd., SPIL, HUL and ITC LTD.). awarded for governance parameters according to their
importance. These key governance parameters and the
2) To construct Corporate Governance Disclosure Index criterion for evaluation of governance are based on various
on the basis of Mandatory and non- Mandatory researches, Companies Act 2013, SEBI (Listing Obligations
requirement issued by SEBI in SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and model
and Disclosure Requirements) Regulations 2015 and suggested by S.C. Das . After determining total scores of the
Companies Act 2013. companies given in table 2 companies will be graded on a
five-point scale as given below in Table 1.
3) To make comparative analysis of Corporate Governance
Disclosure Practices by using index score among the

98 The Management Accountant l October 2018 www.icmai.in

 Table 1: Score Result
Marks Remarks
90-100 Excellent
75-89 Very Good
60-74 Good
50-59 Satisfactory
0-49 Bad

Table -2
Criterion for Evaluation of Governance Standard of Pharmacy and FMCG Companies
For The Financial Year 2016-17
S. Governance Parameters Points Total Cipla SPIL HUL ITC
No. score Ltd. Ltd.
1) Statement of Company’s Philosophy on Code of Governance 1 1 1 1 1 1
2) Composition of the board and BOD meetings held. 5

i) Not less than 50% of the Board of Directors comprising of non-executive 1 1 1 1 1

directors.

ii) At least one woman director. 1 1 1 1 1

iii) Where Chairman is Non-Executive Director-At least 1/3 of the board 1 1 1 1 1

comprise Independent Director where Chairman is Executive- At least ½ of
the board comprise Independent Director.

iv) At least four BOD meetings in a year. 1 1 1 1 1

v) Attendance record of BOD meetings. 1 1 1 1 1

3) Chairman and CEO Duality 5

i) Promoter Executive Chairman- cum-MD/CEO 1 - - - -

ii) Non-Promoter Executive Chairman-cum-MD/CEO 2 - - - -

iii) Promoter Non-Executive Chairman 3 3 - - -

iv) Non-Promoter Non-Executive Chairman 4 - 4 4 4

v) Non-Executive Independent Chairman 5 - - - -

4) Disclosure of tenure & age limit of directors 2 2 2 2 2 2

5) Disclosures regarding to Independent Director (ID) 6

i) Definition of ID. 1 1 1 1 1

ii) Familiarization program to ID & Details of such training imparted to be 1 1 1 1 1

disclosed in the annual report.
1 1 1 1 1
iii) Separate meeting of the ID.

iv) Selection criteria the terms and condition of appointment shall be dis- 1 1 1 1 1
closed on the website of the company.

v) Formal letter of appointment of ID. 1 1 1 1 1

vi) Limit of No. of Directorship for ID (If whole time director then three or If 1 1 1 1 1
not whole time director then seven)

www.icmai.in October 2018 l The Management Accountant 99

 C O R P O R AT E G O V E R N A N C E

6) Disclosure of : 2

i) Remuneration policy 1 1 1 1 1

ii) Remuneration of directors 1 1 1 1 1

7) Directorship and Committees’ Membership/Chairmanship of 2 2 2 2 2 2

directors across all companies

8) Code of Conduct 2

i) Information on Code of Conduct 1 1 1 1 1

ii) Affirmation of compliance 1 1 1 1 1

9) Post board meeting follow up system and compliances of the 2 2 - - - 2

Board procedure.

10) Board Committees :

A) AUDIT COMMITTEE : 8

i) Transparency in composition of the committee.(Qualified and Indepen- 1 1 1 1 1

dent)
ii) 1
Compliance of minimum requirement of No. of Independent Directors in 1 1 1 1
the committee. (Minimum three director and 2/3of the member should be
ID)
iii) 1
Compliance of minimum requirement of the number of committee meet- 1 1 1 1
ings. (At least four times).
iv) 1
Information about literacy & financial expertise of the committee. 1 1 1 1
v) 1
Information about participation of Head of Finance, Statutory Auditors, 1 1 1 1
Chief Internal Auditors, and other invitees in the committee meetings.
vi) 2 2 2 2 2
Disclosure of audit committee charter & terms of reference.
vii) 1 1 1 1 1
Disclosure of Committee report

B) NOMINATION AND REMUNERATION COMMITTEE : 6

i) Formation of the committee 1 1 1 1 1

ii) Information about number of committee meetings. 1 1 1 1 1

iii) Compliance of minimum requirement of No. of Non-Executive Directors in 1 1 1 1 1

the committee. (At least 3 members)

vi) Compliance of the provisions of independent director as chairman of the

committee 1 1 1 1 1

v) Information about participation of meetings. 1 1 1 1 1

vi) Disclosure of Committee report. 1 1 1 1 1

100 The Management Accountant l October 2018 www.icmai.in

 C) SHAREHOLDERS’/STAKEHOLDERS’ RELATIONSHIP COMMITTEE 5
:

i) Transparency in composition of the committee 1 1 1 1 1

Information about nature of complaint & queries received and dis- 1 1
ii) 1 1 1
posed-item wise.
iii) Information about number of committee meetings 1 1 1 1 1
iv) Information about action taken and investors/shareholder survey 1 1 1 1 1
v) Disclosure of Committee report 1 1 1 1 1

D) Risk Management Committee 2

i) Formation of committee 1 1 1 1 1
ii) Disclosure of committee charter report 1 1 1 1 1
E) Additional committee 4

i) Health and Safety & Environment Committee 1 - - - -

ii) CSR and Sustainable Development Committee 1 1 1 1 1

iii) Investment Committee 1 1 - 1 1

iv) Other Committee 1 - - 1 1

11) Disclosure and Transparency : 24

i) Significant related party transaction having potential conflict with the in- 2 2 2 2 2
terest of the company

ii) Non-compliance related to capital market matters during the last 3 years. 2
2 2 2 2
iii) Board disclosure-Risk Management 2
2 2 2 2
iv) Information to the board on Risk Management 2
2 2 2 2
v) Publishing of Risk Management Report 1
1 1 1 1
vi) Management Discuss And Analysis 2

1 2 2 2 2
vii) Information to Shareholders-

• Appointment of new director/re-appointmentof retiring directors 1 1 1 1 1

• Quarterly results & presentation 1 1 1 1 1

• Share-Transfers 1 1 1 1 1

• Directors’ responsibility statement 2 1 1 1 1

viii) Shareholder right 2 2 2 2 2

ix) Audit Qualification 2 2 2 2 2

x) Training of board members 2 2 2 2 2

xi) Evaluation of non-executive directors 1 2 2 2 2

xii) Resignation of Director with reason 1 1 1 1

www.icmai.in October 2018 l The Management Accountant 101

 C O R P O R AT E G O V E R N A N C E

12) General Body Meetings : 3

i) Location and time of General Meetings held in last 3 years 1 1 1 1 1

ii) Details of Special Resolution passed in the last 3 AGM 1 1 1 1 1

iii) Details of resolution passed last year through Postal Ballot including the 1 1 1 1 1
name of conducting official and voting procedure

13) Means of Communication and General Shareholder Information 2 2 2 2 2 2

14) Whistle-Blower Policy & Vigil Mechanism 2 2 2 2 2 2

15) CEO/CFO certification 2 2 2 2 2 2

16) Compliance of Corporate Governance and Auditors’ Certificate : 5

i) Clean certificate from auditors 5 5 5 5 5

17) Code for prevention of insider trading practices 5 5 5 5 5 5

18) Disclosure of stakeholders’ interest : 5

i) Environment, Health & Safety measures (EHS) 1 1 - 1 1

ii) Human Resource Development initiative (HRD) 1 1 - 1 1

iii) Corporate Social Responsibility (CSR) 1 1 1 1 1

iv) Industrial Relation (IR) 1 - - - -

v) Disclosures of policies on EHS, HRD, CSR, & IR 1 1 - - -

TOTAL 100 100 93 90 94 96

Observation: Following observations have been extracted  Companies disclose tenure and age limit of Board
from the Table 2: member according to SEBI’s Regulations in their
respective annual report.
 All companies have their own philosophy on code of
governance.  All sampled companies gave detail of the training
program for ID in their respective annual reports.
 All the four companies have separate post of Chairman
and MD/CEO. In Cipla Ltd. the Chairman is NED  Only ITC Ltd. have post board meeting follow up system
Promoter. While in SPIL,HUL and ITC Ltd. the Chairman and compliances of the board procedure.
is Non Promoter NED.
 Companies disclose their director’s remunerations
 The Board of Director of all sampled companies is duly as per SEBI’s Regulation. All companiesalso have
constituted with proper balance of Executive Director, Remuneration policy towards the Director’s
Non-Executive Director and Independent Director as remuneration.
per SEBI’s Regulation 2015.
 All companies comply mandatory requirements of
 According to SEBI’s Regulations Company’s BOD should statuary committee like Audit Committee, Stakeholders’
be meet minimum four times with maximum gap of 120 Relationship Committee, Remuneration Committee,
days. All four companies also comply it. Risk Management Committee and Corporate Social

102 The Management Accountant l October 2018 www.icmai.in

 Responsibility Committee. Using IBM SPSS22Wilcoxon signed rank-test has been
applied to test whether these four companies show
 All companies framed policy towards the related party compliance with SEBI (Listing Obligation and Disclosure
transactions and insider trading. Requirements) Regulations 2015 practices.

 Companies inform their shareholders regarding the Table 3

appointment of new director, quarterly result of the
Pair SEBI (Listing Obligation
company and directors, responsibility statement. Z p-value
and Disclosure Require-
ments) Regulations 2015
 Companies provides detail about AGM and detail of practices v/s Score of
special resolution passed in the 3 AGM. They also
inform their stakeholders with venue.
-0.749 0.454
1 CIPLA Ltd.
 All companies have an auditor’s certificate to comply
with corporate governance.
-0.061 0.952
2 SPIL
 All Companies have adopted an insider trading policy to
regulate, monitor and report trading by insiders. -0.749 0.454
3 HUL
Suggestions:
According to Index table Cipla got 93,SPIL got 90, HUL 4 -0.513 0.608
got 94 score and ITC got 96.It shows that, all the company’s ITC Ltd.
scores are excellent, but to bring full marks, the company Wilcoxon signed rank-test results for year 2016-17of Pharma
should adopt the following suggestions- and FMCG sector companies

 Company should appoint Non-Executive Director as From the above table 3, it is concluded, that p-value for
well as ID Chairman. all the Pharma and FMCG sector companies is greater than
0.05. This implies that at 5% level of significance, all the four
 Cipla Ltd., SPIL and HUL should have post board Pharmacy companies’ shows compliance with SEBI (Listing
meeting follow up system and compliances of the board Obligation and Disclosure Requirements) Regulations 2015
procedure. practices in year 2016-17.

 All companies should constitute Health and Safety Conclusion:

& Environment Committee as well as Investment It is concluded, that p-value for all the Pharma and FMCG
Committee to get more Score. sector companies is greater than 0.05. This implies that at
5% level of significance, all the four Pharmacy companies’
 All Companies should disclose the policy for show compliance with SEBI (Listing Obligation and
stakeholders’ interest like Environment, Health and Disclosure Requirements) Regulations 2015 practices in year
Safety measures, Human Resources Development 2016-17.All Pharmaand FMCG Sector companies included
initiative, Corporate Social Responsibility and Industrial in BSE SENSEX fulfilled almost mandatory requirements
Relation. in all sub-indices of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations 2015.Findings also
Comparison of Pharma and FMCG Sector Companies show that FMCG sector secure more score in comparison
with SEBI (Listing Obligation and Disclosure to Pharma sector. The ITC Ltd. scored the highest score
Requirements) Regulations 2015for 2016-17 i.e.96in Corporate Governance Index.The suggestions reveal
For the eighteen parameterswith their sub –parts of that companies should have post board meeting follow
SEBI (Listing Obligation and Disclosure Requirements) up system and compliances of the board procedure. The
Regulations 2015 practices scores have been obtained for companies while formulating their policies and strategies
all the four companies CIPLA Ltd., SPIL, HUL and ITC Ltd., must consider social values along with their economic goals.
on the basis of their fulfillment of requirements. The annual report of the company must include a copy of
ethical code of the company. It should be made available

www.icmai.in October 2018 l The Management Accountant 103

to all stakeholders. (2016). The Effect of Corproate Goverance Practices
on Firm performance Evidence from Pakistan. East
References: Asian Journal of Business Management,6 (1), 5-12.
1. Das,S.C (2012) “Corporate Governance in India: An
Evaluation”, Business and Economics, PHI Learning 12. Rajyalakshmi and Memdani, L. (2014). Corporate
Pvt. Ltd. Study of Corporate Governance Disclosure Practices
Adopted by Listed Companies in Manufacturing and
2. Goel,B.B., Goel,P. and Goel,S. (2014) “Corporate Software Sectors in India. Pacific Business Review
governance (Initiatives and Reforms), Deep & Deep International, 6 ( 8)
Publication.
13. Thapar, M. and Sharma, A. (2017). Corporate
3. Gurarda,S., Ozsoz,E. and Ales, A. (2016). Corporate Governance in India: An Analysis. Journal of
Governance Rating and Ownership Structure in the Economic and Social Development, 4 (1),81-87.
case of Turkey. International Journal of Financial
Studies, 4 (8), 1-16. 14. www.moneycontrol.com>market>shareholding

4. Khandelwal,N.M. (2013). “Ethics &Indian in 15. www.nfcindia.org/desirable-corporate governance.

Management-Text and Cases” PACIFIC University. pdf

5. Maheshwari, M. and Meena, S. (2016). Corporate 16. www.nfcindia.org/library-int.htm

Governance: An Empirical Study of Automobile
Companies in BSE Top 100. Inspira- Journal of 17. www.sebi.gov.in/commercereport/corpgov.html
Commerce, Economics and Computer Science, 2(2)
185-193. 18. www.sunpharma.com/investors/annualreports

6. Maheshwari, M., and Meena, S (2015). Corporate 19. https://www.hul.co.in/investor-relations/annual-

Governance Practices: A Comparative Study of SBI reports
& HDFC Bank. International Journal of Research in
IT, Management and Engineering, 5(5), 7-27. 20. https://www.cipla.com/uploads/.../1500033215_
Annual%20Report%202016-17.pdf
7. Maheshwari, M., and Meena, S. (2014). Corporate
Governance Standards and Practices in SBI: An 21. www.itcportal.com/...itc/.../annual-reports/itc-
Empirical Study. Journal of Business Management & annual-report.../ITC
Social Sciences Research (JBM& SSR), 3 (11), 21-26.

8. Maheshwari, M., and Meena, S. (2015). Corporate

Governance Practices: A Comparative Study of
Infosys Ltd. and Wipro Ltd. International Journal of
Business and Administration Research Review, 2 (11), [email protected]
302-307.

9. Maheshwari, M. (2018). Corporate Governance

Disclosure Practices: The Portrait of Gail. Pacific
Business Review International, 10(10). 40-47.

10. Maheshwari, M. (2018). Corporate Governance

Practices in Indian Corporate IT Sector included in
BSE Sensex: A Comparative Study. Indian Journal of
Accounting, 50(1). 13-20.

11. Muhammad,H., Rehman, A.U. and Waqas, M.

104 The Management Accountant l October 2018 www.icmai.in

 CASE STUDY
RESTRUCTURING COMPONENTS
OF SALARY FOR TAX PLANNING
-A CASE STUDY

CMA Dr. Ferojuddin M A Khan

Professor (Accounting and Finance),
S&F Commerce Academy,
Greater Noida

Substantive Issues Raised Review of literature

In this case study, taxation aspect in our country is It has been checked from a number of literatures and
considered, particularity the Income Tax on salary. As per books, including book “Students Guide to Income Tax”
the verdict of Supreme Court in a case, “An assessee can (Singhania 2018), “Problems and Solutions in Income Tax”
so arrange his or her taxable income in such a manner to (Meherotra&Goyal 2017) and “Income Tax – I” (Kumar
minimize the tax burden. Effort to minimize the tax burden &Shreekantha 2018), wherein there are provisions of the
is not an offense. [C.I.T.1Versus Calcutta Discount Co. Ltd. act relating to various components of salary and sample
(1973) (S.C)2]. This verdict becomes the genesis for the examples on how to calculate tax under salary when
entire subject case study. different components of salary are given in the questions,
but not the questions on restructuring of components and
Remember if you do not plan your income from tax angle, examples on comparison of tax computation under before
may be you will find that a major chunk of your hard earned and after restructuring of various components. On the role
income is gone to govt.’s kitty and at the same time, your of accounts and HR department and further on the issue of
counterpart has designed his/her income tactfully, legally documentation, in support of restructuring of components,
and pays lesser amount of tax than you, even with the there is absolutely no journal or any literature noticed to be
same total income. Even many a times, the employer has carrying any input on same.
not updated the salary format or its components, leading to
which proves to be a nightmare for the employees, finding Pedagogical Objectives
a major amount of hard earning has gone to Govt.’s kitty. The case is designed to help the students:

Yes, it is complicated also. Every budget what you see  To get an inside view of fixation of components of salary
comes with new Finance Act, which carries different rates of vis-à-vis Income tax friendly regulations.
tax and lots of modifications/amendments, which confuse
the ordinary citizens. Every time when our finance minister  To understand the multiple perspectives connected
declares restructuring of tax formalities, filing of return etc., to fixation of salary with regard to role of accounts
in return what we find more complicated and lengthy forms. department and requirement of Income Tax Act.

So this case study focuses on the existing format of  To evaluate a particular case of an employee’s salary
salary, evaluates the same and does bring tangible saving format and to restructure the same with the objective
in tax obligation by restructuring of components. So this of reducing the tax obligation legally.
case study will benefit students, employees and even the
professionals like CAs who must come out of their silos to Ground work before restructuring the components
provide real value addition to their clients. of salary
Basic pay of the salary should not be disturbed as

www.icmai.in October 2018 l The Management Accountant 105

 CASE STUDY

changing the same would distort the scale of a prescribed activities. He spends expenditure on petrol or other
grade, which will be complex for HR department to manage. miscellaneous heads on an average for Rs.3,000
P.M., and can claim it as exemption for a total sum of
For the tax planning, generally a major portion of salary Rs.36,000 in a year.
should be in terms of exempted perquisites and allowances.
The amount of Basic plus Dearness Allowances (DA), should Uniform Allowance is exempted up to the amount utilised
be lowest possible and rest should come in terms of more of for same. ABC School of Management does have the
exempted perquisites and allowances than partly exempted, practice of having uniform for the faculties and staff,
wherein the components are not fully exempted and also so Prof. Agrawal does incur expenditure for Rs. 15,000
there are requirement of submission of actual bills. in a year on purchase and maintaining the same and
is exempted.
The amount of components of salary which requires bills
to be submitted such as Academic and Research Allowance,  Telephone Allowance is exempted up to the amount
Leave Travel Assistance (LTA), Helper Allowance, Uniform utilised for official purpose. As it is said that Prof.
Allowance, Telephone Allowance, Conveyance Allowance Agrawal is an old employee of the institute and he
etc., need to be reasonable looking at the scale or position spends Rs.3,000 P.M., on Telephone and Internet
of the employee, as otherwise the same may raise eyebrows expenditure while related to office, so he can get total
of Income Tax officials and which can be subject to scrutiny sum of Rs.36000 P.A. exempted under this head. Prof.
by them. Agrawal however needs to keep the supporting of such
expenditure and submit the undertaking to Accounts
It is necessary that HR department along with Accounts Dept..
department while fixing the tax friendly components of
salary should go for all possible tax exempted perquisites  Academic and Research Allowance is exempted,
or allowances irrespective of whether the amount involved provided spent for encouraging the academic, research
is small or big. and other professional pursuits. Prof. Agrawal is a vivid
writer, who conducts lot of research, visits to clients,
In the present case of Mr. Agrawal3, the salary format Govt. officials, visits many places, write case studies
has been designed from the perspective of faculty in a etc. So a total amount of Rs.60,000 in a year, can be
business school campus while the format for employees claimed as exempted as against Rs.48,000 (Rs.4,000
of manufacturing set up or any corporate houses can be X12) given by Institute to him.
different depending upon the prescribed perquisites and
allowances given in the Income Tax Act.  Leave Travel Assistance (LTA) is spent to the extent of
Rs. 50,000 in every year by Prof. Agrawalinstead of
Selection and structuring of exempted or tax friendly Rs. 39,984 which is exempted once in two years. So
perquisites and allowances claimed Rs. 50,000.
Now let us know what are the various other heads of
income under Income Tax Act, which is either exempted  Helper Allowance is exempted provided the helper is
or may be taxed minimum while there may be some engaged for the performance of official duties. Prof.
requirements as to complying certain conditions. Few of Agrawal pays every month Rs.13,500 to his wife, who is
them are already given in Exhibit-1 and the same are used highly educated but house-wife and helps her husband
as follows: in discharging official duties, like writing to students on
behalf of him on their projects after taking feedback
 Transport Allowance granted up to Rs.1600 P.M., can from Prof. Agrawal, preparing his materials in power
be given to him, which is exempted as per Income Tax point presentation for class room, even guides students
Act for a maximum of Rs.19,200 P.A.. in organizing events in the institute on behalf of the
Prof. Agrawal etc.. So surely Rs. 1,62,000 P.A., can be
 Conveyance Allowance is exempted provided the claimed but balance remaining after deducting amounts
expenditure is incurred by the employee for official under above points comes out to be Rs. 1,61,200/-,
duties. Prof. Agrawal is a senior employee and he which can be claimed as exempted
conducts MDP and even meets corporate officials
for training employees in corporates or for student So as we see, full amount of Rs.2,89,416/- is covered

106 The Management Accountant l October 2018 www.icmai.in

under the various aforesaid heads besides existing Rs. Net Taxable Income 3,22,764/-
39,984/- against LTA and Rs. 48,000/- against Academic (Rounded to Rs. 3,22,760)
allowance also shown and as such Prof. Agrawal is not =========
supposed to pay any tax on the same. Computation of TAX:
Income(Rs.) Rate(%) Tax amount (Rs.)
One possible solution after the tax calculation by First 2,50,000 ---- NIL
Accounts Dept. Balance 72,760 5% 3,638
Though there can be number of possible solutions as ----------
it can come out with different amounts under a number Total Tax 3,638
of different tax friendly perquisites and allowances, a Education & Higher Education cess (3%) 109
possible solution has been designed based on few details -------------
as extracted from in-depth exercise shown in the Exhibit-1. Total Tax 3,747
=========
Based on the above restructuring of the components, So earlier tax obligation of Rs. 45,872as per Accounts
the calculation of taxable income and tax obligation is as depart. hasbeen reduced to Rs. 3,747/-, almost reduction
follows: by 92%. A comprehensive table showing calculation as
per Accounts department and tax computation after
(Rs.) components are restructured along with role of Accounts
1)Basic 4,80,000/- department, is prepared and given in Exhibit-1.
2)Taxable HRA: (Rs.30,000 – Rs.30,000(*)) NIL
(*)Lowest of three is exempted: Other Challenges
a) HRA received : Rs.30,000 But there are also some other issues, need to be
b) 50% of salary (Basic) :Rs. 2,40,000 addressed:
c) Excess of rent over 10% of salary:
(Rs.78,000 – Rs. 48,000): Rs.30,000 a) Lot of support is required from the Accounts Dept.,
So lowest among the three is Rs.30,000/- and if they are not educated or if they do not accept
3) Academic & Research Allowance NIL the supporting of the employee, then employee has to
(Received Rs. 60,000 P. A) allow them to deduct tax and claim refund while filing
4) Transport Allowance NIL his or her return.
(Received Rs.19,200/- Exempted)
5) Medical Reimbursement: NIL b) What is more essential that the management must at
(Received Rs.15,000/-P.A. - Exempted) least allow the restructuring of components so that if
6) Leave Travel Assistance: NIL there is no support from Accounts dept., the same can
- Rs. 50,000/- exempted u/s 10(5): complying to be managed by the employee at the time of return filing
conditions required and he or she can claim the refund.
7) Conveyance Allowance NIL
(Received Rs.36,000 P.A.) c) The employee has to maintain all records relating to any
8) Uniform Allowance NIL allowable expenditure as per Income Tax Act, incurred
(Received Rs.15, 000 P.A.) by him.
9) Telephone Allowance NIL
(Received Rs. 36,000 P.A.) d) This case of Prof. Agrawal can be taken as a model for
10) Helper Allowance restructuring the components of salary of employees
(Received Rs. 1,61,200 P. A.) NIL of manufacturing or other concerns. It is quite natural
------------------ that few components of salary of employees working in
Gross Total Income 4,80,000/- manufacturing or other corporates etc., may not match
Less: Deductions: with the components given in this case.
a) u/s 80C : Rs.1,50,000 (maximum)
b) u/s 80D : Rs. 7,236 References
--------------- 1. Monica Singhania and VinodSinghania, Students Guide
1,57,236/- to Income Tax, 58th ed. (New Delhi: Taxmann, 2018-19)
--------------------

www.icmai.in October 2018 l The Management Accountant 107

 CASE STUDY

2. H. C. Meherotra and S. P. Guyel, Problems and Solution in Income Tax, 1st ed. (New Delhi: SahityaBhawan Publication,
2017)

3. V. Rajesh Kumar and R. K. Shreekantha, Income Tax – I, 1st ed. (New Delhi: McGraw Hill Publication, 2018)

Exhibit-1 (Comparison of Tax computed by Accounts Dept. with Tax obligation resulted due to restructuring of
components)
Particulars Income Tax Income Tax Role of Accounts and HR department and other
calculation calculation Comments
as assessed if as per tax
by Accounts planning
Dept. (Rs.) (Rs.)

Basic @ 40000 P.M 480000 480000 Basic is kept unaffected.

HRA @ 20000 P. M. 240000 30000 HRA is kept that much as it necessary to get exemption.

Special Allowance 54432 ----- Special allowance is fully taxable, so it should be paid in
@ 4536 P. M. other heads which are exempted or tax friendly.

Academic Research 48000 60000 It should be allowed to be exempted by the Accounts

Allowance@ 4000 P. M. dept.
Medical Reimbursement 39984 15000 Medical reimbursement should be restricted to Rs.
@3332 P.M. 15000 P.A. only
LTA @ 3332 P. M. 39984 50000 LTA is exempted once in a period of two years.
(new heads of income which
can be introduced)
Telephone 36000 Telephone expenses reimbursement are exempted pro-
vided employee gives certificate that the expenses in-
curred for official purpose.
Uniform Allowance 15000 The employee will give certificate that he has utilized
the expenses for purchase and maintenance of the uni-
form throughout the year
Transport Allowance 19200 This is exempted up to Rs. 19200 P.A. based on certif-
icate.
Conveyance Allowance 36000 The employee will give certificate that he has utilized
the expenses on conveyance in performance of official
duties. Petrol bills need to be kept by the employee.

Helper Allowance 161200 Helper engaged for the performance of official duties is
exempted.
Gift (in kind) or Gift voucher ---- Though not claimed but up to Rs. 5000 in a year is ex-
empt.
Free food and beverages Though not claimed but meals in office hours is not tax-
able if cost to the employer is Rs. 50 or less per meal.
Tea, coffee or non-alcoholic beverages and snacks in
working hours are tax free perquisite.
Interest-free / concessional ---- Loan up to Rs. 20000 PA is not taxable. Loan for med-
loan ical treatment is not taxable subject to few conditions.

108 The Management Accountant l October 2018 www.icmai.in

Providing the use of computer ------ Not taxable.
/laptop in any case

Total (A) 902400 902400

Less: Allowances to the extent

exempt under section 10
HRA 30000 30000 Since the employee stays in rented house in Greater
Noida and pays only Rs. 6500 rent P.M. and as per the
tax rules, Rs.30000 is received and same is exempted
as follows:

As per Accounts:
1)50% of salary: Rs. 2,40,000
2)Actual HRA received: Rs. 30,000
3)Excess of rent over 10% of salary: Rs.78000-
Rs.48000=Rs. Rs.30000

LTA 39984 50000 LTA is exempted once in two years.

Medical 15000 15000 Medical bills should be submitted to Accounts depart-
reimbursement ment
Conveyance Allowance 36000 The employee will give certificate that he has utilized
the expenses for official duties.
Transport Allowance 19200 ------ do ------
Academic Allowance 60000 Bills need to be produced by faculty of spending money
on Academic research or certificate need to be given to
Accounts. This was there but accounts department did
not allow the same as deduction. Since the actual ex-
penditure being spent by employee was more, so more
amount should be allocated to employee.
Uniform Allowance 15000 A certificate from employee will suffice.
Telephone expenses 36000 Bills need to be produced or certificate from employee.

Helper Allowance 161200 ------ do ------

Total (B) 84984 422400

Gross Total Income (X=A-B) 817416 480000

Deduction u/S 80C (C ) 150000 150000
---- do-- u/s 80D (D) 7236 7236
Total Taxable Income (X-C-D) 660180 322764

Tax on income (including edu- 45872 3747 A saving of Rs.42,125/- (92%)

cation cess)

[email protected]

www.icmai.in October 2018 l The Management Accountant 109

 INSTITUTE NEWS
Eastern India Regional Council

The Institute of Cost Accountants of India- Rourkela Chapter

The Chapter organised "Felicitation Program" on 9th September, 2018 at its office.

The Institute of Cost Accountants of India- Ranchi

Chapter
The Chapter organized two-day annual seminar at CMPDI
Ltd. The seminar was inaugurated by Hon© ble Governor
of Jharkhand, the Chief Guest. He said that the general
consciousness of cost and the price of commodities is
important for sustainable development of the economy.
President of the Institute, CMA Amit Anand Apte said that
the chapter will be developed as a center of excellence
with its newly proposed building. On the first day of the
technical session, CMA VS Datey, from Pune, a famous
writer of GST books discussed all the modifications in the
GST and its latest development so far. CMA Balwinder Singh,
Vice President of the Institute discussed about the present
scenario of Cost Accounting and Auditing Standard. In the
technical session on the second day, CMA SS Sonthalia
from Bhubaneshwar discussed Insolvency and bankruptcy
code. He stressed that for any business organization, free
admission, free competition and free exit, whether it is a
company, firm or individual, for ease of doing business
in India. From Kolkata, CA Samiran Dutta discussed IFRS
and said that international financial reporting standards
are commonly referred to as IFRs, IFRS Foundation and
International Accounting Standards Board (IASB). CMA
Meera Prasad, CMA AK Gupta, CMA Rajesh Vishwakarma,
CMA Navin Kumar and CMA Umar Farooq coordinated the
proceedings of the session while CMA Arunay Kumar Singh,
Vice President of the chapter proposed the vote of thanks.
Guest of Honours were CMD CMPDIL Shri Shekhar Saran
and MECON Director Finance CMA R H Juneja.

110 The Management Accountant l October 2018 www.icmai.in

Northern India Regional Council

The Region organized Northern Regional Students Convention for recently qualified CMAs of June-2018 term examination
on 17th Sep, 2018 at New Delhi.

The Institute of Cost Accountants of India -Jaipur Chapter

The Chapter organized a seminar on “Recent Changes in

Income Tax Return & Tax Audit” and “Useful Tips for Smart
Professional Life” on 11th August 2018 at its premises. In
the first technical session, CA Anoop Bhatia, leading tax
consultant gave presentation on “Recent Changes in Income
Tax Return & Cost Audit Report”. In the second technical
session CMA Swapnil Bhandari, secretary of the chapter
gave useful tips for smart professional life. Both the
sessions were very interactive. The Chapter celebrated 72nd
Independence Day on 15th August 2018 at its premises.

www.icmai.in October 2018 l The Management Accountant 111

 INSTITUTE NEWS

Chairman of the chapter, CMA Rakesh Yadav hoisted the National Flag along with senior members. He also apprised
the members about various activities, achievements and latest development at the chapter. A charity program was also
organised before flag hoisting ceremony.

112 The Management Accountant l October 2018 www.icmai.in

Southern India Regional Council
The Institute of Cost Accountants of India - Mysore Chapter
The Chapter conducted closing ceremony of first batch of certificate course on GST at its premises on September 1,
2018. Mr. S Gundu Rao, Joint Commissioner of Commercial taxes (Admn) Mysuru was the chief guest. He informed that
in the present perspective it is very essential for professionals & students to update on GST.

The Institute of Cost Accountants of India - Thrissur

Chapter
The Chapter celebrated the 72nd Independence day
and CMA P.T. Jose, Managing Committee, member of the
chapter hoisted the flag.

The Institute of Cost Accountants of India -Coimbatore function was inaugurated by Sri. V. Krishna Kumar, President
Chapter of SIEMA, Coimbatore. The Prizes were distributed by Dr.
T.G. Vijaya, Director I/C, PSG Institute of Management, the
The Chapter conducted an inter collegiate students’ Chief Guest for the e Valedictory function. A PD program
event titled “COSMA Fest 2018” on 11th August, 2018 on ‘Mixed Supply & Composite Supply under GST’ was
which purports to exhibit the inner talents of students. The conducted at the Chapter on 28th August, 2018. On 21st

www.icmai.in October 2018 l The Management Accountant 113

 INSTITUTE NEWS

August, 2018, career counselling Program was conducted at Platinum Jubilee, the Chapter organised "Blood Donation
Dr. SNS Rajalakshmi College of Arts & Science, Coimbatore. Camp" on 19th August, 2018 at Indian Medical Association
As per circular of the President, as a part of celebration of Blood Bank, Coimbatore.

Western India Regional Council

The Institute of Cost Accountants of India -Ahmedabad Chapter

The Chapter organized interaction of members for the Camp at the chapter was organized on August 15, 2018.
discussion on the Draft Companies (Cost Records & Audit) Press & Electronics media meet was organized in connection
Amendment Rule, 2018 on August 6, 2018. The Chapter with June’18 exam result of Foundation, Intermediate and
organized Industry visit (Factory visit) at M/s. Somany Final at the chapter on August 24, 2018. Leading reporters
Ceramics Ltd, Kadi on August 11, 2018 for final students as of print media and electronics media attended the press
a part of IOP. Flag hoisting ceremony and Blood Donation meet. On the same day, the chapter organized felicitation

114 The Management Accountant l October 2018 www.icmai.in

of faculties of GST certificate course and distribution of Training & Placement, Delhi at its premises from September
certificates to qualified candidates. Guest of program was 5, 2018. Inauguration function of orientation program was
Smt. Rajshri Pandya, Dy. Commissioner of SGST, Ahmedabad presided by CA Sanjay Patni, CFO of Havmor Icecream
Ltd., Ahmedabad. In valedictory session chief guest was
CMA A R Patel, Ex-Executive Director-Finance of ONGC.
CMA A R Patel, Chief Guest explained about preparation
of Interview to the CMAs. The Chapter organized Industry
visit at M/s. Tata Motors , Sanand Plant on September
21, 2018 for final students as a part of IOP. Mr. Saurabh
Chaudhary-Financial Head, CMA Jay Chokshi, Sr.Manager-
Plant Finance and Mr. Piyush Mishra-Manager HR of Tata
Motors guided and explained in details the manufacturing
process of Nano Motors from raw materials to finished
product. The Chapter organized mock interview session for
qualified CMAs on September 22, 2018.

and Shri RO Jetly, Asstt. Commissioner of CGST & Customs,

Ujjain. The Chapter organized felicitation of faculties and
pass out students of foundation, intermediate and final of
June’18 exam of Institute on August 30, 2018. A CEP on
New IT Tools & Technologies for business was organized
on 8th Sept’2018 at chapter’s premises. CMA Malay Vakil
submitted the presentation and explained about operation
of new IT Tools & Technologies. A CEP on Annual Return
GSTR1 was organized on 15th Sept’2018 at the chapter
premises. The Chapter organized 12 days orientation
program for qualified CMAs under the guideline of Director

www.icmai.in October 2018 l The Management Accountant 115

 INSTITUTE NEWS

The Institute of Cost Accountants of India- Kolhapur Sangli Chapter

The Chapter organized a CEP on “Understanding IBC The faculty for the workshop was CMA Raghvendra Chilveri.
(Insolvency Bankruptcy Code) & Role & opportunities for He explained the topic in detail and the basics of preparing
CMA in IBC” and "How to prepare for IBC exam & Recent the IBC exam.
development in IBC & Road ahead" on 5th August, 2018.

The Institute of Cost Accountants of India- Pimpri Chinchwad Akurdi Chapter

The Chapter celebrated Flag Hoisting Ceremony on the Serological Institute Blood Bank organised Blood Donation
occasion of 72nd Independence Day on 15th August 2018 Camp for members and students on 12th August 2018 at
at CMA Bhawan. The Chapter in association with Pimpri CMA Bhawan.

116 The Management Accountant l October 2018 www.icmai.in

www.icmai.in October 2018 l The Management Accountant 117
 The Institute of Cost Accountants of India

118
(Statutory body under an Act of Parliament)
Directorate of Advanced Studies, Examination Time Table & Programme - December - 2018
Diploma in Internal Audit Diploma in IS Audit and Control Diploma in Business Valuation
Day, Date & Time
2.00 PM to 5.00 PM 02.00 PM to 06.00 PM 2.00 PM to 05.00 PM
Monday
Paper-I: Nature of Internal Audit *************************** ***************************
10th December, 2018
Tuesday
Paper-II: Internal Audit Practice *************************** ***************************
11th December, 2018

Wednesday
Paper-III: Internal Audit Report Preparation *************************** ***************************
12th December, 2018

Thursday
*************************** IS Audit and Control ***************************

The Management Accountant

13th Decmber, 2018

l
Friday Paper-I : Principles of Valuations and Valuation Techniques
*************************** ***************************
14th December, 2018 (Principles of Business Valuation)
Paper:- II: Application of Valuation Techniques (Application of
Saturday
*************************** *************************** Valuation Principles)
15th December, 2018

Sunday * Paper:-III: Valuation:- Corporate Laws and Direct and Indirect

*************************** ***************************
16th December, 2018 Tax Implications

October 2018
**Paper:-IV: Business Valuation Standards and Preparations of
Monday
*************************** *************************** Business Valuations Reports (Business Valuation Standards and
17th December, 2018
Preparation of Business Valuation Reports)

1. Students can also download the Examination Form from ICAI Website at www.icmai.in
2. Examination fees to be paid through Demand Draft of requisite amount drawn in favour of "The Institute of Cost Accountants of India" Payble at Kolkata
3. Examination Fees: Rs. 1200/- per course or per paper

5. The filled in application along with DD to be sent to the following address:

4. The last date for the receipt of the Examination Application Form without late fees is 15th October, 2018 and with late fees of Rs. 300/- is 22nd October, 2018

CMA (Dr.) Debaprosanna Nandy

Sr. Director - Advanced Studies
The Institute of Cost Accountants of India
(Statutory body under an Act of Parliament)
CMA Bhawan, 12 Sudder Street, Kolkata - 700 016
Email: [email protected]

Note:
1. * Paper- III of the Diploma in Business Valuation is applicable only for 2nd batch
2. ** Paper IV of Diploma in Business Valuation is applicable for batch 1st and 2nd. This paper IV will be treated as Paper-III for 1st batch.
3. Last Term for appearing Examination in old course for Diploma in Internal Audit, Diploma in IS Audit & Control and Diploma in Business Valuation (1st Batch & 2nd Batch) will be in December 2018

www.icmai.in
CMA Dr. Debaprosanna Nandy
Sr. Director (Advanced Studies)
 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
(STATUTORY BODY UNDER AN ACT OF PARLIAMENT)
MANAGEMENT ACCOUNTANCY
EXAMINATION TIME TABLE & PROGRAMME – DECEMBER 2018

www.icmai.in
Group - I Group - II
Monday Tuesday Wednesday Thursday Friday
10th December, 2018 11th December, 2018 12th December, 2018 13th December, 2018 14th December, 2018
2.00 P.M to 5.00 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 02.00 P.M to 05.00 P.M
Management Advanced Management Industrial Relations & Marketing Organisation & Economic Planning &
Accountancy Techniques Personnel Management Methods Development

EXAMINATION FEES

Per Group Rs 2500/-

1. Students can also download the Examination Form from ICAI Website at www.icmai.in
.
2. Last date for receipt of Examination Application Form without late fees is 15th October, 2018 and with late fees of Rs. 300/- is 22nd October, 2018.

3. Examination fees to be paid through Demand Draft of requisite amount drawn in favour of “The Institute of Cost Accountants of India” and payable at Kolkata.

October 2018
4. Examination Centres: Adipur-Kachchh (Gujarat), Agartala, Agra, Ahmedabad, Akurdi, Allahabad, Asansol, Aurangabad, Bangalore, Baroda, Berhampur (Ganjam), Bhilai, Bhilwara, Bhopal, Bewar City(Rajasthan), Bhubaneswar, Bilaspur, Bokaro,
Calicut, Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun, Delhi, Dhanbad, Duliajan (Assam), Durgapur, Ernakulam, Erode, Faridabad, Ghaziabad, Guntur, Guwahati, Haridwar, Hazaribagh, Howrah, Hyderabad, Indore, Jaipur, Jabalpur,

l
Jalandhar, Jammu, Jamshedpur, Jodhpur, Kalyan, Kannur, Kanpur, Kolhapur, Kolkata, Kota, Kottakkal (Malappuram), Kottayam, Lucknow, Ludhiana, Madurai, Mangalore, Mumbai, Mysore, Nagpur, Naihati, Nasik, Nellore, Neyveli, Noida, Palakkad,
Panaji (Goa), Patiala, Patna, Pondicherry, Port Blair, Pune, Raipur,Rajahmundry, Ranchi, Rourkela, Salem, Sambalpur, Shillong, Siliguri, Solapur, Srinagar, Surat, Thrissur, Tiruchirapalli, Tirunelveli, Trivandrum, Udaipur, Vapi, Vashi, Vellore,
Vijayawada, Vindhyanagar, Waltair and Overseas Centres at Bahrain, Dubai and Muscat.

5. A candidate who is fulfilling all the conditions only will be allowed to appear for the examination.

6 The filled in application along with DD to be sent to the following address:

CMA (Dr.) Debaprosanna Nandy

Sr. Director - Advanced Studies
The Institute of Cost Accountants of India
(Statutory body under an Act of Parliament)
CMA Bhawan, 12 Sudder Street, Kolkata - 700 016
Email: [email protected]

The Management Accountant

For any enquiries please mail us at [email protected]

119
CMA Dr. Debaprosanna Nandy
Sr. Director (Advanced Studies)
 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
(STATUTORY BODY UNDER AN ACT OF PARLIAMENT)

EXAMINATION TIME TABLE & PROGRAMME – DECEMBER – 2018

FOUNDATION COURSE EXAMINATION

Foundation Course Examination Syllabus-2016

Day & Date
Time 2.00 p.m. to 5.00 p.m.

Monday,
Fundamentals of Economics & Management
10th December, 2018

Tuesday,
Fundamentals of Accounting
11th December, 2018

Wednesday,
Fundamentals of Laws & Ethics
12th December, 2018

Thursday,
Fundamentals of Business Mathematics & Statistics
13th December, 2018

Examination Fees

Inland Centres ` 1200/-

Foundation Course Examination
Overseas Centres US $ 60

1. The Foundation Examination will be conducted in Offline, descriptive (Pen & Paper) mode only. Each paper
will be of 100 marks and for 3 hours duration.

2. Application Forms for Foundation Examination has to be filled up through online and fees will be accepted through
online mode (including Payfee Module of IDBI Bank).

3. STUDENTS OPTING FOR OVERSEAS CENTRES HAVE TO APPLY OFFLINE AND SEND DD ALONGWITH THE FORM.

4. (a) Students can login to the website www.icmai.in and apply online through payment gateway by using Credit/Debit
card or Net banking.

(b) Students can also pay their requisite fee through pay-fee module of IDBI Bank.

5. Last date for receipt of Examination Application Forms is 10 th October, 2018.

6. Examination Centres: Adipur-Kachchh(Gujarat), Agartala, Agra, Ahmedabad, Akurdi, Allahabad, Asansol,

Aurangabad, Bangalore, Baroda, Berhampur(Ganjam), Bhilai, Bhilwara, Bhopal, Bewar City(Rajasthan),
Bhubaneswar, Bilaspur, Bokaro, Calicut, Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun, Delhi, Dhanbad,
Duliajan (Assam), Durgapur, Ernakulam, Erode, Faridabad, Ghaziabad, Guntur, Guwahati, Haridwar, Hazaribagh,
Howrah, Hyderabad, Indore, Jaipur, Jabalpur, Jalandhar, Jammu, Jamshedpur, Jodhpur, Kalyan, Kannur, Kanpur,
Kolhapur, Kolkata, Kota, Kottakkal (Malappuram), Kottayam, Lucknow, Ludhiana, Madurai, Mangalore, Mumbai,
Mysore, Nagpur, Naihati, Nasik, Nellore, Neyveli, Noida, Palakkad, Panaji (Goa), Patiala, Patna, Pondicherry, Port
Blair, Pune, Raipur,Rajahmundry, Ranchi, Rourkela, Salem, Sambalpur, Shillong, Siliguri, Solapur, Srinagar, Surat,
Thrissur, Tiruchirapalli,Tirunelveli, Trivandrum, Udaipur, Vapi, Vashi, Vellore, Vijayawada, Vindhyanagar, Waltair
and Overseas Centres at Bahrain, Dubai and Muscat.

7. A candidate who is completing all conditions for appearing the examination as per Regulation will only be
allowed to appear for examination.
8. Probable date of publication of result: 21st February, 2019.

* For any examination related query, please contact [email protected]

L. Gurumurthy
Secretary (Acting)

120 The Management Accountant l October 2018 www.icmai.in

 THE INSTITUTE OF COST ACCOUNTANTS OF INDIA
(STATUTORY BODY UNDER AN ACT OF PARLIAMENT)

INTERMEDIATE AND FINAL EXAMINATION TIME TABLE & PROGRAMME – DECEMBER 2018

PROGRAMME FOR SYLLABUS 2016

ATTENTION: INTERMEDIATE & FINAL EXAMINATION (DECEMBER – 2018 TERM) WILL BE HELD ON ALTERNATE DATES FOR EACH GROUP.

www.icmai.in
INTERMEDIATE FINAL
Day & Date (Time: 2.00 P.M. to 5.00 P.M.) (Time: 2.00 P.M. to 5.00 P.M.)
(Group – I) (Group – II) (Group – III) (Group – IV)
Monday,
Financial Accounting (P-05) ------------------- Corporate Laws & Compliance (P-13) -------------------
10th December, 2018
Tuesday, Operations Management & Strategic
------------------- ------------------- Corporate Financial Reporting (P-17)
11th December, 2018 Management (P-09)
Wednesday,
Laws & Ethics (P-06) ------------------- Strategic Financial Management (P-14) -------------------
12th December, 2018
Thursday, Cost & Management Accounting and
------------------- ------------------- Indirect Tax Laws & Practice (P-18)
13th December, 2018 Financial Management (P-10)
Friday,
Direct Taxation (P-07) ------------------- Strategic Cost Management – Decision Making (P-15) -------------------
14th December, 2018
Saturday,
------------------- Indirect Taxation (P-11) ------------------- Cost & Management Audit (P-19)
15th December, 2018
Sunday,
Cost Accounting (P-08) ------------------- Direct Tax Laws and International Taxation (P-16) -------------------
16th December, 2018
Monday, Strategic Performance Management and Business
------------------- Company Accounts & Audit (P-12) -------------------
17th December, 2018 Valuation (P-20)
EXAMINATION FEES
Group (s) Final Examination Intermediate Examination
One Group (Inland Centres) `1400/- `1200/-
(Overseas Centres) US $ 100 US $ 90
Two Groups (Inland Centres) `2800/- `2400/-
(Overseas Centres) US $ 100 US $ 90

October 2018
1. Application Forms for Intermediate and Final Examination has to be filled up through online only and fees will be accepted through online mode only (including Payfee Module of IDBI Bank). No Offline form and DD
payment will be accepted for domestic candidate.
2. STUDENTS OPTING FOR OVERSEAS CENTRES HAVE TO APPLY OFFLINE AND SEND DD ALONGWITH THE FORM.

l
3. (a) Students can login to the website www.icmai.in and apply online through payment gateway by using Credit/Debit card or Net banking.
(b) Students can also pay their requisite fee through pay-fee module of IDBI Bank.
4. Last date for receipt of Examination Application Forms is 10 th October, 2018.
5. The provisions of direct tax laws and indirect tax laws, as amended by the Finance Act, 2017, including notifications and circulars issued up to 31 st May , 2018, are applicable for December 2018 term of examination for the
Subjects Direct Taxation, Indirect Taxation (Intermediate) , Direct Tax laws and International Taxation and Indirect Tax laws & Practice (Final) under Syllabus 2016. The relevant assessment year is 2018-19. For statutory
updates and amendments please refer to http://icmai.in/studentswebsite/Syl-2016.php
6. Companies (Cost Records and Audit) Rules, 2014 as amended till 20th Dec 2017 is applicable for December 2018 examination for Paper 12- Company Accounts and Audit (Intermediate) and Paper 19-Cost and Management
Audit (Final) under Syllabus 2016 for December 2018 term examination. Please also refer to http://icmai.in/upload/Students/Circulars/Relevant-Info-December 2018.pdf
7. The provisions of the Companies Act 2013 are applicable for Paper 6- Laws and Ethics (Intermediate) and Paper 13- Corporate Laws and Compliance (Final) under Syllabus 2016 to the extent notified by the Government
up to 31st May, 2018 for December 2018 term of examination.
8. For Applicability of IND_AS and amended AS for paper 5 –Financial Accounting and Paper 12-Company Accounts and Audit (Intermediate) and Paper 17-Corporate Financial Reporting (Final) refer to relevant circular in
website for December 2018 term examination. Please refer to http://icmai.in/studentswebsite/Syl-2016.php
9. Pension Fund Regulatory and Development Authority Act, 2013 is being included in Paper 6- Laws and Ethics (Intermediate) and Insolvency and Bankruptcy Code 2016 is being included in Paper 13- Corporate Laws and
Compliance (Final) under Syllabus 2016 for December 2018 term of examination. For further clarification visit our website www.icmai.in
10. Examination Centres: Adipur-Kachchh (Gujarat), Agartala, Agra, Ahmedabad, Akurdi, Allahabad, Asansol, Aurangabad, Bangalore, Baroda, Berhampur (Ganjam), Bhilai, Bhilwara, Bhopal, Bewar City(Rajasthan),
Bhubaneswar, Bilaspur, Bokaro, Calicut, Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun, Delhi, Dhanbad, Duliajan (Assam), Durgapur, Ernakulam, Erode, Faridabad, Ghaziabad, Guntur, Guwahati, Haridwar,
Hazaribagh, Howrah, Hyderabad, Indore, Jaipur, Jabalpur, Jalandhar, Jammu, Jamshedpur, Jodhpur, Kalyan, Kannur, Kanpur, Kolhapur, Kolkata, Kota, Kottakkal (Malappuram), Kottayam, Lucknow, Ludhiana,

The Management Accountant

Madurai, Mangalore, Mumbai, Mysore, Nagpur, Naihati, Nasik, Nellore, Neyveli, Noida, Palakkad, Panaji (Goa), Patiala, Patna, Pondicherry, Port Blair, Pune, Raipur, Rajahmundry, Ranchi, Rourkela, Salem, Sambalpur,
Shillong, Siliguri, Solapur, Srinagar, Surat, Thrissur, Tiruchirapalli, Tirunelveli, Trivandrum, Udaipur, Vapi, Vashi, Vellore, Vijayawada, Vindhyanagar, Waltair and Overseas Centres at Bahrain, Dubai and Muscat.
11. A candidate who is fulfilling all conditions specified for appearing in examination will only be allowed to appear for examination.
12. Probable date of publication of result: Inter & Final – 21st February, 2019.

121
* For any examination related query, please contact [email protected]
L. Gurumurthy
Secretary (Acting)
122 The Management Accountant l October 2018 www.icmai.in
www.icmai.in October 2018 l The Management Accountant 123
124 The Management Accountant l October 2018 www.icmai.in