The Management Accountant · 2012-12-22 · by Dr. K. V. Ramana Murthy & Dr. K. V. Achalapathi 134...

PRESIDENTG. N. Venkataraman

email : [email protected] PRESIDENT

B. M. Sharmaemail : [email protected] COUNCIL MEMBERS

A. N. Raman, A. S. Durga Prasad,Ashwin G. Dalwadi, Balwinder Singh,Chandra Wadhwa, Hari Krishan Goel,Kunal Banerjee, M. Gopalakrishnan,

Dr. Sanjiban Bandyopadhyaya,S. R. Bhargave, Somnath Mukherjee,

Suresh Chandra Mohanty, V. C. Kothari,GOVERNMENT NOMINEES

Jaikant Singh, P. K. Sharma, R. K. Jain,S. C. Vasudeva, T. S. Rangan

CHIEF EXECUTIVE OFFICERSudhir [email protected]

Senior Director (Examinations)Chandana Bose

[email protected] Director

(Administration & Finance)R N Pal

[email protected] (Technical)

J. P. [email protected]

Director (Studies)Arnab Chakraborty

[email protected] (CAT)L. Gurumurthy

[email protected] (PDD and Training & Placement)

J. K. [email protected].

Additional Director (CEP)D. Chandru

[email protected] Director (Membership) cum

Joint SecretaryKaushik Banerjee

[email protected] Director (International Affairs)

S. C. [email protected]

EDITORSudhir Galande

Editorial Office & Headquarters12, Sudder Street, Kolkata-700 016Phone : (033) 2252-1031/34/35,

Fax : (033) 2252-1602/1492Website : www.icwai.org

Delhi OfficeICWAI Bhawan

3, Institutional Area, Lodi RoadNew Delhi-110003

Phone : (011) 24622156, 24618645,Fax: (011) 24622156, 24631532, 24618645

TheManagementAccountan t

« Official Organ of The Institute of Cost and Works Accountants of India

established in year 1944 (Founder member of IFAC, SAFA and CAPA)

Volume 45 No. 2 February 2010

the management accountant, February, 2010 91

Editorial 93

President’s Communique 94

Cover Features

New Pension System - An Efforttowards an Inclusive Safety Net forOld Age

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by Dr. Netra Apte 96

IAS 26, Accounting and Reporting byRetirement Benefit Plans - A CloserLook

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by K. S. Muthupandian 101

AS(15)-Accounting for RetirementBenefits in the financial statements ofemployer-Review and comparativestudy of AS-15 with IAS-19 andFAS-36 (USA)

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by S. Murugan 106

Life Insuranceby A. L. Prasad 114

Accounting Issues

Accrual Accounting in Government:An Analytical View

by Dr. T. Satyanarayana Chary &K. Vara Prasad 116

Costing MattersThroughput Accounting–A Tool toManage Inventory During Recessionby Atul Shiva & Monica Sethi123

Recent developments in financeMaintenance Spares Management :Cost Reduction Approach

○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○

by B. C. Patel 126

Global Financial Crisis, RiskManagement & Financial Stabilityby Dr. A. Srivastava &Sheetal Kumar 139

IDEALSTHE INSTITUTE STANDS FOR

q to develop the Cost and Manage-ment Accountancy profession q todevelop the body of members andproperly equip them for functionsq to ensure sound professionalethics q to keep abreast of newdevelopments.

The views expressed bycontributors or reviewers in thisJournal do not necessarily reflect theopinion of The Institute of Costand Works Accountants of India nor can the Institute by any way beheld responsible for them. Thecontents of this journal are thecopyright of The Institute of Costand Works Accountants of India,whose permission is necessary forreproduction in whole or in part.

Marketing MattersAvenues and Revenues-A Study on thePricing Strategies of Telugu TVChannelsby Dr. K. V. Ramana Murthy &Dr. K. V. Achalapathi 134

Taxation UpdatesLatest Arrivals-ACES (Automation ofCentral Excise & Service Tax)by R. Gopal 163

IFRS 129

51st National Convention 130

Admission to Membership 146

Announcement 153

Legal Updates 154

Regions & Chapter 164

The Management AccountantTechnical Data

Periodicity MonthlyLanguage English

Overall size - 26.5 cm. x 19.5 cm.Printed Area - 24 cm. x 17 cm.

Screens - up to 130

Subscription

Rs. 300/- (Inland) p.a.Single Copy : Rs. 30/-

Overseas

US $ 150 for AirmailUS $ 100 for Surface Mail

Concessional Subscription Rates for RegisteredStudents & Grad CWAs of the Institute

Rs. 150/- p.a.Single Copy : Rs. 15/- (for ICWAI

Students & Grad CWAs)

Subscription rate and price ofThe Management Accountant

(Student Edition)Annual Subscription rate : Rs. 50Price of Single copy : Rs. 5

Revised Rates for AdvertisementThe Management Accountant

Rs. (US $)Back Cover (colour only) 50,000 2,500

Inside Cover (colour only) 35,000 2,000

Ordy. Full page (B/W only) 20,000 1,500

Ordy. Half page (B/W only) 12,000 1,250

Ordy. Qrtr. page (B/W only) 7,500 750

Revised Rates for AdvertisementStudent Edition

Full Page Rs. 12,000

Back Page Rs. 10,000

(Always Half Page only)

Inside Half Page Rs. 7,500

Inside Quarter Page Rs. 5,000

The Institute reserves the right to refuse anymatter of advertisement detrimental to theinterest of the Institute. The decision of theEditor in this regard will be final.

92 the management accountant, February, 2010

MISSION STMISSION STMISSION STMISSION STMISSION ST AAAAATEMENTTEMENTTEMENTTEMENTTEMENT

�ICWAI Professionals would ethically driveenterprises globally by creating value to stakeholdersin the socio-economic context through competenciesdrawn from the integration of strategy, managementand accounting.�

VISION STVISION STVISION STVISION STVISION ST AAAAATEMENTTEMENTTEMENTTEMENTTEMENT

�ICWAI would be the preferred source of resourcesand professionals for the financial leadership ofenterprises globally.�

DISCLAIMER

The views expressed by the authors are personaland do not necessarily represent the views andshould not be attributed to ICWAI.

NOTIFICA TION

Ref. No. DS-3/1/1/10 January 12, 2010

Finance (No.2) Act 2009, involving Assessment Year2010-2011 will be applicable for the subjects BusinessTaxation (Intermediate) and Strategic Tax Management(Final) under Syllabus 2002 for the purpose of June 2010term of Examination.

Arnab ChakrabortyDirector-Studies

NOTIFICA TION

Ref. No. DS-3/2/1/10 January 12, 2010

Finance (No.2) Act 2009, involving Assessment Year2010-2011 will be applicable for the subjects Applied DirectTaxation (Intermediate), Applied Indirect Taxation(Intermediate) and Indirect & Direct-Tax Management (Final)for the purpose of June 2010 term of Examination underRevised Syllabus 2008.

Arnab ChakrabortyDirector-Studies

Editorial


"Old age is the most unexpected of all things thathappen to man."--Leon Trotsky

An age bomb is ticking in India with the current elderlypopulation of nearly 75 million expected to increaseto 160 million by 2020. Around one-eight of the world'selderly population lives in India. Caring for the agedis part of our social tradition and ethos with explicitrecognition of Vanaprastha or 'retirement stage' andaction taken by family and community to facilitatethe same. Unfortunately, in India, Old Age seems tobe most unanticipated and consequently groundworkfor it is quite inadequate. With globalization andmigration, the joint family system is on the decline (atleast in urban areas) and to that extent the challengeof caring for the aged has become greater for societyand the government. The traditional and informalmethods of old age income security are not able tocope with the trends of increased life span andenhanced medical expenses during old age.

Pension savings are the primary source of securityfor retirement. Pensions are expected to achieve thegoals of minimizing poverty in old age; smootheninginter temporal life consumption, which fluctuatessignificantly and ensuring that retirees do not outlivetheir pension benefits. This has been achieved indifferent countries and different sectors by followingspecific retirement benefit schemes like pay-as-yougo, which are Defined Benefit plans and publiclyfunded. However there is an increase in the greyingpopulation on account of increased life expectancydue to advances in medicine, decline in populationgrowth and improved lifestyle requirements at old age.All these factors are putting pressure on the socialsecurity system and also impacting the corporate'sbalance sheets due to greater pension outlays. In sucha scenario, corporates would like to move away fromDefined Benefit to Defined Contribution schemes butare being met with substantial opposition fromemployees due to fall in the benefits.

India has to grapple with an additional problem oflarger coverage of the population under the social

security net especially the unorganized sector (AnOASIS report estimates that nearly 90% of theworkforce is not covered by any of the mandatoryschemes and they depend on other financial savings,investment in gold or on family support) and the abilityof the state to sustain its current schemes forgovernment employees, owing to the fact that pensionpayments constitute a major share of the government'sexpenditure and thus any increase in pension paymentwill add to the already woeful fiscal deficit of thecountry.

The existing schemes like Provident Fund schemesare characterized by under performance and areviewed more as modes of tax evasion by the salariedincome earners rather than as a fund that would coverexpenditure during the lifetime after retirement.Investment restrictions owing to archaic regulations;under developed annuity markets, which result inlimited returns and inadequate development of theinsurance sector that has a symbiotic relationship withthe pensions sector, have hindered pension reformsin our country. Apart from addressing the commercialand economic considerations of pensions; reducingthe wide chasm between the pension benefits of thepublic and private sectors and linking health care issuewith retirement benefits are also required to take careof the social aspect of pensions.

The Old Age Social and Income Security (OASIS)report has led to the formulation of the New PensionScheme (NPS) in India from 2009. The NPS is afirst of its kind social security scheme and is proposedto remove the many ills that plague the current pensionsector in India.

In the current issue we focus on the salient featuresof the NPS and examine the accounting standardsrelating to retirement plans. Cost AccountingStandard- 7 on Employee Cost released by ICWAIalso considers the aspect of retirement plans. Asadvisors/ consultants, Cost & ManagementAccountants have an important role in recommendingthe most suitable and cost effective pension plans fortheir clients.

Pension Ponderables


lPresident�s Communique l

Dear Professional Friends,

SEASON'S GREETINGS TO ALL OF YOU.

I am happy to note that the year 2010 has been a good start for ICWAI with thefollowing events:-

ICWAI elected to Vice Presidentship of South Asian Federation of Accountants (SAFA):

After 14 years, our Institute has got the turn of occupying the Vice Presidentship ofSAFA and this has happened on 23rd January 2010 when SAFA Assembly electedICWAI Council Member, Shri A.N. Raman as its Vice President for the year 2010 withan overwhelming unanimous support. While sharing this glad news, I have to informthat many of our members are not thinking about the contribution by our Institutethrough this body and hence I am specifically requesting all the members to understandthe functioning of SAFA, Confederation of Pacific and Asian Accountants (CAPA)and International Federation of Accountants. These are the bodies, which are monitoring the good Cost andManagement Accountant Practice at SAARC Regional level, at the Asia Pacific level and at the world level. Ifour good Cost and Management Accountant practices are shared with these bodies, which we are doing, itcould bring ICWAI to high reckoning. This enables ICWAI to earn a place to have a say in all the matters ofSAFA, including Cost and Management Accountancy.

I congratulate Shri A.N. Raman on my behalf and on behalf of the ICWAI Council and other ProfessionalMembers of ICWAI for having occupied the seat, and wish him the best tenure of 2010 as Vice President ofSAFA. Several opportunities are getting opened to the Cost and Management Accountants and we are takingthe lead to spread these first to the SAARC regional body and then to the other higher levels. I am sure the newVice President of SAFA will be able to achieve the above professional aspirations and bring laurels to ourprofession and the Institute. The job will continue further till 2011 when ICWAI occupies the seat of Presidentship of SAFA in the beginning of year 2011 when we can continue the 2010 achievements and contributefurther in the coming years.

Shri Komal Chitrakar of Nepal elected as President of SAFA for the year 2010:On behalf of ICWAI, I congratulate Shri Komal Chitrakar for taking over the Presidentship of SAFA for theyear 2010.

Emerging Professional Matters:I am getting several suggestions and advices relating to many professional matters which are in the pipe line likeCompany Law Bill 2009, Introduction of GST, Direct Tax Code, Adoption of International Financial ReportingStandards (IFRS), the name change and Expert Group recommendations to MCA, etc. Since these matters arein several stages of follow-up, I can only assure the members that all the suggestions given by our friends arebeing taken care of and we are continuously monitoring and following up on all these matters to get our duerecognition and we are hopeful of the same.

Co-ordination Committee meeting with the Institute of Chartered Accountants of India:I am glad to inform you that a Co-ordination Committee meeting was held recently with the Institute ofChartered Accountants of India (ICAI) and the dialogue has started with the understanding of points on bothsides wherever we can work together to arrive at a consensus for giving relief to some of the problems arisingfor students and members of both the Institutes. I am sure in the coming months, when we come out withcertain recommendations, the students and members should be very happy and this dialogue will continuefurther also.

Visits to the Regions and Chapters during December 2009 and January 2010:It was a record admission to ICWA Courses in the current batch at SIRC, Chennai. Over 1,000 students hadassembled for the inaugural function along with their parents. The Principal Secretary of Tamil Nadu Governmentinaugurated the classes. Other Office-bearers who spoke on the occasion, highlighted the importance of


education in Cost and Management Accountancy. The students and parents were happy to react to the suggestionsgive by the Chief Guest and other people and were happy about the scope for Cost and Management Accountants,which the Institute is working for. Some faculties also gave advice to the students and suggestions to theparents to see that students who take the initial registration for ICWAI Course should have a zeal to completethe Final examination for which all infrastructure are provided by the Regional Council and the Institute.

I was also happy to share some details with the officials on clarifications asked by Media. A good coveragecame from Chennai Media.

The Nagpur Chapter of Cost Accountants had arranged a very educative seminar on GST and Indirect Taxesbringing the knowledgeable Resource Persons including top officials from Central Excise and Customs. Thevalue addition of the seminar is that members were suggesting for conduct of number of such seminars andwork-shops on the above topics so that our students and members will be able to take the lead in the mattersof Service Tax, Excise Duty, Customs Duty, VAT and future GST with the Corporate world.

I was happy to attend along with few Central Council colleagues, a function of Surat Chapter of CostAccountants. An excellent programme of recognizing the top achievers in the Institute examination was heldand this will go a long way in propagating the quality additions to our studentship registration as well asenhancing the quality and quantity of members. Chairman-WIRC was present along with WIRC Councilcolleagues.

The Surat Chapter of Cost Accountants also arranged an "Investor Awareness Programme" with the participationof Resource Persons from the respective fields like Stock-Brokers, Mutual Fund Executives, Investors, Banksand Insurance Companies. Members are aware that the Investor Awareness Programme conducted by ICWAIin co-ordination with MCA is attracting good number of participants and we are confident of achieving thedesired goal of MCA in corporatising India, particularly in formation of LLPs, etc., which the Government iskeen to encourage. ICWAI will be conducting this programme for another one year in various cities in thecountry and I once again appeal to all the Chapters and the four Regional Councils to make this InvestorAwareness Programme a big success and this will add visibility of ICWAI which is necessary for our futuregrowth.

The Noida Chapter of Cost Accountants organized a Members' Meet and the inauguration of first Oral CoachingBatch for ICWAI Courses to cater to the needs of students around Noida and particularly the interior parts ofU.P. I have taken the opportunity to advise all members and students that we should propagate the CAT courseto the nook and corner of India and to reach this to village level 10+2 students so that they can be brought intothe mainstream for achieving inclusive growth. It is our desire that all of us should take steps whatever isnecessary in propagating the admission of rural students for this course. The Institute has assured all thefacilities to all the colleges wherever they start this course and see to it that ICWAI will be a partner of theGovernment in its revolution of achieving inclusive growth.

It is my appeal from now onwards till 31st March 2010 to all our members to bring more and more non-members who have passed ICWAI examination into our fold by applying for our Membership. I am happy toinform that for the last six months, addition to our Associates and Fellowships is on the increase. However, wehave to achieve quite a lot if we have to be regarded as a sizeable number to work and contribute in propagatingthe Cost and Management Accountancy to the whole of India, if not to the world community.

With regards,

Yours sincerely

(GN Venkataraman)PresidentDate : 1st February, 2010

lPresident�s Communique l


New Pension System -An Effort towards anInclusive Safety Net forOld AgeDr. Netra Apte*

B.Com, AICWAI, MMS, Ph.D

H uman race is blessed withintelligence. The variousscientific and medical

inventions especially through the lastcentury have increased the lifeexpectancy. At the same time, increasingeconomic factors like inflation, dynamicbusiness environment and globali-zation, coupled with equally changingsocial milieu has made human livescomplex. The average life expectancyin India has gone up to 65 years plus,both for males and females. This meansthat duration of post-retirement life(most private sector employers in Indianormally have 60 years as the age ofretirement) has increased compared towhat prevailed when India got itsindependence. The key imperative ishow does one sustain one's lifestyleand still manage dependents afterretirement. As shown in the Figure1,one can understand that finding newsource of income after the age of 60 isnot possible for the majority of thepopulation. Also expenditure onmedicines would go up in this age. In asituation where rising inflation alongwith limited source of income, that isreturns on savings, has to be managed,it is crucial to have enough savings tosurvive with pride.

Thus importance of pension systemcan be expressed with Figure1.

Old Age Social and Income Security(OASIS) Report, 2004, has stated thatout of 314 million workers, 47 million areregular salaried employees of whomonly 11 million are covered byGovernment pension and about 23

million are governed by the mandatoryEPS and the EPF, constituting about 11% of the workforce. The remaining 90%,consisting mainly of the unorganizedsector including the self-employed andpeople working under casual contractare totally outside the safety net ofpensions at present. This challengegets further compounded if we take intoconsideration the projected age profileof India's population in future.

Percentage of total population

2005 2010 2015

0-14 years 33.70% 31.50% 29.60%

15-64 years 61.60% 63.60% 65.20%

Over 65 years 4.70% 4.90% 5.20%

Projected Age Profile

Source: Statistical Outline of India 2004-05

AGE (Years)

- Rising inflation and income - Free time to pursue the hobby; if is limited to returns on savings sufficient funds are available - Increase in medical expenses - Hard to find a new source of A income S Retirement Age (60 Years) P E C T - Routine expenses of family - Regular flow of Income S - Education of children - Ability to learn new things and adapt - Marriage of children changes - Wealth Creation - Physical fitness

Plotting of Age against different aspects in life (Figure 1)

Let us see the projected age profile forIndia.

The OASIS Report highlighted tothe government the need for adesigning a pension plan to helpaddress the key challenge of providingpeople save for their post-retirement life.

Before discussing the New PensionSystem (NPS), let us see the availableinstruments for saving for retirement.Available instruments for retirement:

Till now Provident Fund forgovernment employees, Provident Fundfor private sector and Public ProvidentFund were the instruments available toa person for retirement provision.Insurance companies are also providingPension Fund Policies. But many suchpolicies require the minimum premiumto be more than Rs. 12000/- per year,which may become unaffordable tomany people. Hence, governmentdesigned an affordable plan which isinclusive of the unorganized sector,

Cover Feature


agricultural workers and large sectionof people, the New Pension System(NPS). With changes in socio-economicenvironment, the government has alsocarried out a major change beforeintroducing NPS. That is, from earlierschemes which offered "Defined Benefit(DB)", now it has been shifted to"Defined Contribution (DC)".Provident Fund for governmentemployees, for private sector and PublicProvident Fund, all are defined benefitscheme. That means, benefit to bereceived by the person is assured.

1All over the world there has been atendency to switch over from DB to DCsystem. It has certain key reasons. Theforces of globalization have causedchanges in job frequently; peoplemoving from one organization toanother, from one country to another,making it almost impossible to run a DBsystem. Other reason includes theweakening of trade unions across theglobe and the decreasing rate of interestwhich has led to employers finding itincreasingly difficult to sustain thefunding required to build up thebenefits on the DB system. Sinceenvironment now has become toodynamic to afford defined benefitsystem, the concept of definedcontribution has evolved. Under thissystem, returns are market driven. Theyare not fixed or assured. A person whowishes to make a provision for the oldage can contribute as per his or her wishand ability. Hence, Pension FundRegulatory and Development Authority(PFRDA) has been established by theGovernment of India, Ministry ofFinance to promote old age security.NPS is now available to all citizens ofIndia with effect from May 1, 2009 otherthan government employees alreadycovered under NPS.2Under NPS, two types of accounts willbe available to the account holder:1. Tier I account: Account holder can

contribute the savings for retirementinto this non- withdrawableaccount.

2. Tier II Account: This is a voluntarysavings facility. An account holderwill be free to withdraw the savingsas per his or her wish.

1R. Vaidyanathan, Pension Business InIndia, IIMB Management Review,September 20042New Pension System , Offer Document

But, at present only Tier I accountsystem is available. Tier II system willstart as per PFRDA's decision andsubsequent notification.

Let us see the procedure for openingthis account and various aspects ofworking of NPS.Who can join?

A citizen of India, whether residentor non resident, subject to the followingconditions:1. Person should be between 18 -55

years of age as on the date of thesubmission of the application form.

2. Person should comply with KnowYour Customer (KYC) norms.

Who cannot join?1. Undischarged insolvent2. Individuals of unsound mind3. Pre - existing account holders underNPS.How to enroll in NPS?

To enroll in the NPS, person needsto submit the registration form to thepoint of presence service provider (POP-SP) of his or her choice. There arecurrently 22 POP - SP'S. ICICI Bank Ltd,LIC of India, State Bank of India are fewof them.

After the account is opened, CentralRecord Keeping Agency (CRA), shallmail a welcome kit to the account holdercontaining the subscriber's uniquePermanent Retirement Account NumberCard. This account number will be theprimary means of identifying andoperating the account.

Fund Managers: The subscriber ofNPS need to choose a pension fundfrom the following list:1. ICICI Prudential Pension Funds

Management Company Ltd.2. IDFC Pension Funds Management

Company Ltd.3. Kotak Mahindra Pension Fund Ltd.4. Reliance Capital Pension Fund Ltd.5. SBI Pension Funds Private Ltd.6. UTI Retirement solutions Ltd.How much does the subscriber needsto contribute?Minimum contribution per year -Rs. 6,000/-Minimum amount per contribution -

Rs. 500 (12 installments minimum perannum)Minimum number of contributions - 4per yearWhat are the benefits of joining theNPS?l It is voluntary.l It is simple.l It is flexible: One can choose his/

her own investment option andpension fund and see money grow.

l It is portable: One can operate youraccount from anywhere in thecountry, even if one changes thejob, city or pension funds manager.

l It is regulated: NPS is regulated byPFRDA, with transparent invest-ment norms and regular monitoringand performance review of fundmanagers by NPS Trust.

What investment choices thesubscribers have?

The NPS offers you two approachesto invest your money:l Active choice: Individual fundsl Auto choice: Lifecycle fundActive choice: Individual funds

The account holder has choice toactively decide as to how your NPSpension wealth is to be invested in thefollowing three options.Asset class E:Investments in predominantly equitymarket instruments.

The investment in this class of assetwould be a subject to a cap of 50 %, asit bears high risk.Asset class C:Investments in fixed income instrumentsother than Government Securities.Asset class G :Investments in Government securities.Auto choice - Lifecycle Fund

Those account holders who cannotdecide the allocation of funds in theabove mentioned three classes, theycan go for this option. Here, the fractionof funds invested across the three

Cover Feature


assets classes will be determined by apredefined portfolio, which is decidedon the basis of the age of the accountholder.It is important to note that neither theActive choice nor the Auto choiceprovide assured returns.When can a subscriber withdraw theamount?Tax Benefits

Tax benefits would be applicable asper the Income Tax Act, 1961 asamended from time to time.Charges:Contributors have to pay two types ofcharges.Fixed charges1. Rs. 50 /- (One time charge for issuing

permanent retirement accountnumber)

2. Rs.40 (initial subscriber registrationand Rs. 20 for any subsequenttransactions)

3. Rs.350/- (Annual maintenancecharge)

4. Rs. 10/- for every transaction fromfund value.

Variable charges1. 0.0075 - 0.05 % of fund value per

annum as custodian charge.2. 0.0009% of the fund value per

annum as investment managementfees.

Vesting criteria Benefits At any time before 60 years of age

Person is required to invest at least 80 % of the pension wealth to purchase a life annuity from any IRDA – regulated Life insurance company. Rest 20% of the pension wealth may be withdrawn as a lump sum.

On attaining the age of 60 years and up to 70 years of age

At exit, required to invest minimum 40 percent of accumulated savings (Pension wealth) to purchase life annuity from any IRDA regulated Life insurance company. One can choose to purchase an annuity for an amount greater than 40%. The remaining pension wealth can either be withdrawn in a lump sum on attaining the age of 60, or in a phased manner, between age 60 and 70, at the option of the subscriber.

Death due to any cause In such an unfortunate event, option will be available to the nominee to receive 100% of the NPS pension wealth in lump sum. However, the nominee wishes to continue with the NPS, he/she shall have to subscribe to NPS individually after following due KYC procedure.

Account opening and PermanentRetirement Account maintenancecharges of the CRA are not static;annual maintenance charges and pertransaction fee will decline to Rs. 250and Rs. 4, respectively, when thenumber of accounts with CRA reaches30 lakhs.

Let us now see how NPS is differentfrom existing options for pension fund.

Let us see now an illustration of Unitlinked pension plan of a privateinsurance company and of Accountunder New Pension System.1. Since minimum contribution for

private insurance companiesgenerally is Rs. 15000 per Annum,Illustration is worked out for theamount of Rs. 15000 per year.

2. Term considered for 10 years. i.e. 50year old person enters in the schemeand continues up to the age of 60years.

3. Service tax is not included in theillustration but it will be subject tothe prevailing tax laws and rates .

4. In the Illustation of PrivateInsurance company, service tax isadded back to the Fund value toeliminate the effect of service tax.

5. 10 % Rate of return is assumed6. For pension rate of interest is

assumed at 8.14%

7. Calculations under New PensionSystem are not published by theOffice of New Pension System.

8. Service tax, rate of return, Rate ofinterest for pension may change asper rules and regulations andEconomic conditions.

* The above illustration is onlyindicative and not for anyinvestment decision -making. Pleasecheck with your respectiveinsurance companies and/or NPSintermediaries for advice beforemaking any decision.

One can observe thatl Charges in NPS are much lower than

private insurance companies. Hencethe amount of pension per year ismore in NPS than Insurancecompanies.

l Though illustration is made foe Rs.15000 per year, in NPS minimumamount to be invested is Rs. 6000/-. So many people can afford it.

l To be successful, NPS needs morevolumes, that is, number ofaccountholders, along with theefficiency. Otherwise it would bedifficult to sustain.

Challenges about fee structureNPS has attracted a lot of criticism,

much of which focuses on levyingadministrative charges even on the

Cover Feature


Existing options including Provident Fund, PPF and plans offered by Insurance companies

New Pension System

1 These are Defined Benefit schemes (except Unit-Linked Policies)

This is a Defined Contribution scheme.

2 Available only to a limited section of the population. Available to all citizens of India. 3 If an employee changes the job, he/she needs to shift his/her

Provident Fund to the new company. Account number is portable. One can operate his/her account from anywhere in the country, even if one changes the job, city or pension fund manager.

4 Fee structure for Unit-linked pension plans and other policies by Insurance companies varies from company to company. Hence, people find it difficult to compare across plans.

Standard fee structure.

5 Minimum contribution per year is around Rs. 15,000/- in case of Insurance companies.

Minimum contribution per year is Rs. 6,000/- per year.

minimum annual contribution of Rs.6,000/-. However, if we observe thevalue chain of this system, the long termbenefits of the critical services andsustainability of the model, one wouldfind it cost-effective.

NPS, being a defined contributionpension system, involves severalspecialized entities for collectingcontribution, managing funds andrendering various services to themembers. The entities involved in NPSmanagement are pension fund managers(PFM), central record keeping agency(CRA), point of presence (POP), trusteebank, custodian and annuity services

Illustration for Pension PlanNew Pension System

Year Contribution Fixed charges Amount Fund value

Variiable charges

Management Fees

Net fund

Invested 1 15000 500 14500 15950 8 0 15942 2 15000 430 14570 33563 17 0 33546 3 15000 430 14570 52928 26 0 52901 4 15000 430 14570 74218 37 1 74180 5 15000 430 14570 97625 49 1 97575 6 15000 430 14570 123360 62 1 123297 7 15000 430 14570 151654 76 1 151576 8 15000 430 14570 182761 91 2 182668 9 15000 430 14570 216962 108 2 216851 10 15000 430 14570 254564 127 2 254434

Annual Pension at 8.14% rate 20711

providers (ASP). These entities act in acohesive and orderly manner under thePFRDA guidelines and NPS trustsupervision to ensure safety securityand growth of assets to providemaximum risk adjusted return and timelyservice to the subscribers. Theregulator needs to ensure that the costis not a burden on the system, impactinglong term earnings of the fund. At thesame time, fee structure should alsoprovide sufficient incentives forefficient performance of the variousentities involved in managing pensionfunds to conduct business in aprofessional manner, observing

investment ethics. Hence, it will beuseful to understand at theinternational practices under thepension systems.International practice of fee structure

International practice of feestructure and cost regulation in DCprivate pension system varies widelyacross different countries. While somecountries put a limit on various fees,some leave them to market forces. Thereis also variation in the composition offee structure globally. In most LatinAmerican countries, fees are chargedon contribution basis and some suchas Peru and Columbia do not charge

Cover Feature


Insurance Company ULIP

Policy Annualised Amount Policy Fund Management Fund Value

Year premium available for admin. charges at end investment charges

1 15000 15000 1980 195 14198 2 15000 15000 1980 392 29363 3 15000 15000 1980 606 45798 4 15000 15000 1980 838 63609 5 15000 15000 1980 1089 82911 6 15000 15000 0 1382 106235 7 15000 15000 0 1713 131735 8 15000 15000 0 2073 159371 9 15000 15000 0 2462 189320 10 15000 15000 0 2885 221777

Annual Pension at 8.14% rate 18053

fund management fees separately butinclude it in the contribution fees.Countries such as Australia and Chilecharge both types of fees. Costs ofmanaging private pension also dependon the nature of collection ofcontribution and record maintenance.In Colombia, Uruguay and Polandcentralized agencies collectcontribution and distribute fundsamong the pension fund managers whileChile, Peru and Hungary havedecentralized collection system andcontributions are collected by thepension fund managers. In Chile,Mexico and Peru, there is no limit onfees, but there is not much variation inactual fee structure even without anycap. Average administrative charges,including funds management fees, varyfrom 1% to 1.8%. Generally, the assetmanagement fees vary from 0.5% to 1.5%in eastern European countries.

While going through theinternational fee structure, it will beuseful to know some of the value addedservices which really help to achievethe goal of an account holder. In theUK, after four years of public debate, itwas decided that every provider of DCpensions would be required to give anannual statement showing the likelyprojected value of the individual's fundat retirement age and the amount ofpension it might buy at current prices.

The values would only be estimates andwould depend on unknown variablesthat would inevitably change over time.But since the statement would be givenevery year, expectations wouldpractically be managed on an ongoingbasis.Conclusion:

While concluding, we can say thatgovernment of India has taken a goodstep for covering the people undersafety net of pension plan. But it needsto promote the concept with marketingefforts to reach the general public. Theinstrument will not be bought off theshelf without persuasion. Internationalexperience also suggests that voluntaryparticipation is usually very low -around 5%, and in the absence ofemployer sponsorship, increase inparticipation can only be stimulated byactive marketing.

Besides this, success of NPS isdependent on number of people joiningthis plan. For that along with marketingactivities, it is extremely important to winthe confidence of investors. Let us seehow to win the confidence of peopleand what can be the major concerns ofpeople?l Individuals accumulate fund for

their old age and hence safety ofthat corpus is extremely importantalong with the rate of return.

l Since Active choice is offered to

public, it is important to make themaware of the risk and returns in thevarious options.

l 5The pension regulatory bodyshould be given both power andresources to carry out spot checksand detailed investigationsindependent of any complaint.

l It is essential to ensure thatsubscriber receive clear and goodquality information on their pensionaccumulation.

l 6Promptness in account settlementsis the important service that peoplegenerally look for.

l Government should clarify thetaxation aspect of contribution ofpension, and pension to bereceived. Taxation aspect should beat par with Life insurance at least upto a certain limit.

l As NPS has the minimumcontribution amount of Rs. 6000 perannum and also provision toparticipate in equity market throughNPS, it certainly is affordable tomany people. Those people who arenot coming under any pensionschemes can participate in NPS. Aswe know though Public ProvidentFund (PPF), has minimum annualcontribution is Rs.500/-, it givesdefined return and not allow toparticipate in equity market. HenceNPS gives better chance to anaccount holder to cope up withinflation.If marketed properly and

administered efficiently, NPS is anexcellent plan to provide safety net topeople in their old age. Along withproviding a financial safety net, NPS willalso provide a life of dignity to India'ssenior citizens.q

5S.P.Subhedar: The pension RegulatoryEnvironment In India- A Suitable Model,,Pension Business in India, IIMBManagement Review , September 20046Shubhabrata Das : Survey on PensionPerceptions,Pension Business in India,IIMB Management Review , September2004

Cover Feature


IAS 26,Accounting and Reportingby Retirement Benefit Plans- A Closer LookK.S.Muthupandian*

I nternational Accounting Standard(IAS) 26, Accounting andReporting by Retirement Benefit

Plans, prescribes the principles forreporting of retirement benefit plans.Retirement benefit plans are sometimesreferred to by various other names, suchas 'pension schemes', 'superannuationschemes' or 'retirement benefitschemes'. In July 1985, the InternationalAccounting Standards Committee(IASC) issued the Exposure Draft E27,Accounting and Reporting byRetirement Benefit Plans. In January1987, the IASC issued IAS 26,Accounting and Reporting byRetirement Benefit Plans, operative forfinancial statements of retirementbenefit plans covering periodsbeginning on or after January 1, 1988.In 1994, the IASC reformatted IAS 26.In April 2001, the InternationalAccounting Standards Board (IASB)resolved that all Standards andInterpretation issued under previousConstitutions continued to beapplicable unless and until they wereamended or withdrawn.

ObjectiveThe objective of IAS 26 is to specify

measurement and disclosure principlesfor the reports of retirement benefitplans. All plans should include in theirreports a statement of changes in netassets available for benefits, a summaryof significant accounting policies and a

description of the plan and the effect ofany changes in the plan during theperiod.

Retirement benefit plans are normallydescribed as either defined contributionplans or defined benefit plans, eachhaving their own distinctivecharacteristics. Occasionally plans existthat contain characteristics of both.Such hybrid plans are considered to bedefined benefit plans for the purposesof IAS 26.

For defined contribution plans, theobjective of reporting is to provideinformation about the plan and theperformance of its investments.

For defined benefit plans, theobjective of reporting is to provideinformation about the financialresources and activities of the plan thatwill facilitate an assessment of therelationships between the accumulationof resources and plan benefits over time.

Scope and Application

IAS 26 applies for financialstatements of retirement benefit plans,where such financial statements areprepared. It deals with reporting to allparticipants as a group, and specificallydoes not deal with reports to individualsabout their retirement benefits. IAS 26does not deal with other forms ofemployment benefits such asemployment termination indemnities,deferred compensation arrangements,long service leave benefits special earlyretirement or redundancy plans, healthand welfare plans or bonus plans. It also

does not deal with government socialsecurity type arrangements.

IAS 26 regards a retirement benefitplan as a reporting entity separate fromthe employers of the participants in theplan. All other standards apply tofinancial statements of retirementbenefit plans to the extent that they arenot superseded by IAS 26. Note thatIAS 19, Employee Benefits is concernedwith the determination of the cost ofretirement benefits in the financialstatements of employers having plans.Hence IAS 26 complements IAS 19.

Retirement benefit plans with assetsinvested with insurance companies aresubject to the same accounting andfunding requirements as privatelyinvested arrangements. Accordingly,they are within the scope of IAS 26unless the contract with the insurancecompany is in the name of a specifiedparticipant or a group of participantsand the retirement benefit obligation issolely the responsibility of theinsurance company.

Many require the creation ofseparate funds, which may or may nothave separate legal identity and may ormay not have trustees, to whichcontributions are made and from whichretirement benefits are paid. IAS 26applies regardless of whether such afund is created and regardless ofwhether there are trustees.

Some retirement benefit plans havesponsors other than employers; IAS 26also applies to the financial statementsof such plans.

Key Definitions

Retirement benefit plans arearrangements whereby an entityprovides benefits for employees on orafter termination of service (either in theform of an annual income or as a lumpsum) when such benefits, or thecontributions towards them, can bedetermined or estimated in advance ofretirement from the provisions of adocument or from the entity's practices.

Cover Feature

*M.Com., FICWA, and Member of TamilNadu State Treasuries and Accounts Service,presently working as Treasury Officer,Ramanathapuram District, Tamil Nadu.


Defined contribution plans areretirement benefit plans for which theamounts to be paid as retirementbenefits are determined bycontributions to a fund together withinvestment earnings thereon.

Defined benefit plans are retirementbenefit plans under which amounts tobe paid as retirement benefits aredetermined by reference to a formulausually based on employees' earningsand / or years of service.

Funding is the transfer of assets toan entity (the fund) separate from theemployer's entity to meet futureobligations for the payment ofretirement benefits.

Participants are the members of aretirement benefit plan and others whoare entitled to benefits under the plan.

Net assets available for benefits arethe assets of a plan less liabilities otherthan the actuarial present value ofpromised retirement benefits.

Actuarial present value of promisedretirement benefits is the present valueof the expected payments by aretirement benefit plan to existing andpast employees, attributable to theservice already rendered.

Vested benefits are benefits, therights to which, under the conditionsof a retirement benefit plan, are notconditional on continued employment.

Prescribed Accounting TreatmentDefined contribution plans

The financial statements of adefined contribution plan shall containa statement of net assets available forbenefits and a description of thefunding policy.

Under a defined contribution plan,the amount of a participant's futurebenefits is determined by thecontributions paid by the employer, theparticipant, or both, and the operatingefficiency and investment earnings ofthe fund. An employer's obligation isusually discharged by contributions tothe fund. An actuary's advice is not

normally required although such adviceis sometimes used to estimate futurebenefits that may be achievable basedon present contributions and varyinglevels of future contributions andinvestment earnings.

The participants are interested inthe activities of the plan because theydirectly affect the level of their futurebenefits. Participants are interested inknowing whether contributions havebeen received and proper control hasbeen exercised to protect the rights ofbeneficiaries. An employer is interestedin the efficient and fair operation of theplan.

The objective of reporting by adefined contribution plan is periodicallyto provide information about the planand the performance of its investments.That objective is usually achieved byproviding financial statementsincluding the following:

(a) a description of significant activitiesfor the period and the effect of anychanges relating to the plan, and itsmembership and terms andconditions;

(b) statements reporting on thetransactions and investmentperformance for the period and thefinancial position of the plan at theend of the period; and

(c) a description of the investmentpolicies.

Defined benefit plans

The financial statements of adefined benefit plan shall contain either:

(a) a statement that shows:

(i) net assets available for benefits,

(ii) actuarial present value of promisedretirement benefits, distinguishingbetween vested benefits and non-vested benefits, and

(iii) resulting excess or deficit

(b) a statement of net assets availablefor benefits including either

(i) note disclosing actuarial present

value of promised retirementbenefits, distinguishing betweenvested benefits and non-vestedbenefits, or

(ii) a reference to this information in anaccompanying actuarial report

The actuarial present value ofpromised retirement benefits shall bebased on the benefits promised underthe terms of the plan of service renderedto date based on either current salarylevels or projected salaries. Disclosureof the basis is necessary. Changes inactuarial assumptions with significanteffect on the actuarial present value ofpromised retirement benefits shall alsobe disclosed.

The financial statements shallexplain the relationship between theactuarial present value of promisedretirement benefits and the net assetsavailable for benefits, and the policy forthe funding of promised benefits.

Under a defined benefit plan, thepayment of promised retirement benefitsdepends on the financial position of theplan and the ability of contributors tomake future contributions to the planas well as the investment performanceand operating efficiency of the plan.

A defined benefit plan needs theperiodic advice of an actuary to assessthe financial condition of the plan,review the assumptions and recommendfuture contribution levels.

The objective of reporting by adefined benefit plan is periodically toprovide information about the financialresources and activities of the plan thatis useful in assessing the relationshipsbetween the accumulation of resourcesand plan benefits over time. Thisobjective is usually achieved byproviding financial statementsincluding the following:

(a) a description of significant activitiesfor the period and the effect of anychanges relating to the plan, and itsmembership and terms andconditions;

Cover Feature


(b) statements reporting on thetransactions and investmentperformance for the period and thefinancial position of the plan at theend of the period;

(c) actuarial information either as partof the statements or by way of aseparate report; and

(d) a description of the investmentpolicies.

Actuarial present value of promisedretirement benefits

The present value of the expectedpayments by a retirement benefit planmay be calculated and reported usingcurrent salary levels or projected salarylevels up to the time of retirement ofparticipants.

The reasons given for adopting acurrent salary approach include:

(a) the actuarial present value ofpromised retirement benefits, beingthe sum of the amounts presentlyattributable to each participant in theplan, can be calculated moreobjectively than with projectedsalary levels because it involvesfewer assumptions;

(b) increases in benefits attributable toa salary increase become anobligation of the plan at the time ofthe salary increase; and

(c) the amount of the actuarial presentvalue of promised retirementbenefits using current salary levelsis generally more closely related tothe amount payable in the event oftermination or discontinuance of theplan.

The reasons given for adopting aprojected salary approach include:

(a) financial information should beprepared on a going concern basis,irrespective of the assumptions andestimates that must be made;

(b) under final pay plans, benefits aredetermined by reference to salariesat or near retirement date; hencesalaries, contribution levels and

rates of return must be projected;and

(c) failure to incorporate salaryprojections, when most funding isbased on salary projections, mayresult in the reporting of anapparent over funding when theplan is not over funded, or inreporting adequate funding whenthe plan is under funded.

The actuarial present value ofpromised retirement benefits based oncurrent salaries is disclosed in thefinancial statements of a plan to indicatethe obligation for benefits earned to thedate of the financial statements. Theactuarial present value of promisedretirement benefits based on projectedsalaries is disclosed to indicate themagnitude of the potential obligationon a going concern basis which isgenerally the basis for funding. Inaddition to disclosure of the actuarialpresent value of promised retirementbenefits, sufficient explanation mayneed to be given so as to indicate clearlythe context in which the actuarialpresent value of promised retirementbenefits should be read. Suchexplanation may be in the form ofinformation about the adequacy of theplanned future funding and of thefunding policy based on salaryprojections. This may be included in thefinancial statements or in the actuary'sreport.

Frequency of actuarial valuations

In many countries, actuarialvaluations are not obtained morefrequently than every three years.Where actuarial valuation has not beenprepared at the date of the financialstatements, the most recent valuationshall be used as a base and the date ofthe valuation shall be disclosed.

Financial statement content

For defined benefit plans,information is presented in one of thefollowing formats which reflect different

practices in the disclosure andpresentation of actuarial information:

(a) a statement is included in thefinancial statements that shows thenet assets available for benefits, theactuarial present value of promisedretirement benefits, and the resultingexcess or deficit. The financialstatements of the plan also containstatements of changes in net assetsavailable for benefits and changesin the actuarial present value ofpromised retirement benefits. Thefinancial statements may beaccompanied by a separateactuary's report supporting theactuarial present value of promisedretirement benefits;

(b) financial statements that include astatement of net assets available forbenefits and a statement of changesin net assets available for benefits.The actuarial present value ofpromised retirement benefits isdisclosed in a note to thestatements. The financialstatements may also beaccompanied by a report from anactuary supporting the actuarialpresent value of promisedretirement benefits; and

(c) financial statements that include astatement of net assets available forbenefits and a statement of changesin net assets available for benefitswith the actuarial present value ofpromised retirement benefitscontained in a separate actuarialreport.

In each format a trustees' report inthe nature of a management or directors'report and an investment report may alsoaccompany the financial statements.

Those in favour of the formatsdescribed in (a) and (b) believe that thequantification of promised retirementbenefits and other information providedunder those approaches help users toassess the current status of the planand the likelihood of the plan's

Cover Feature


obligations being met. They alsobelieve that financial statements shouldbe complete in themselves and not relyon accompanying statements. However,some believe that the format describedin (a) could give the impression that aliability exists, whereas the actuarialpresent value of promised retirementbenefits does not in their opinion haveall the characteristics of a liability.

Those who favour the formatdescribed in (c) believe that theactuarial present value of promisedretirement benefits should not beincluded in a statement of net assetsavailable for benefits as in the formatdescribed in (a) or even be disclosed ina note as in (b), because it will becompared directly with plan assets andsuch a comparison may not be valid.They contend that actuaries do notnecessarily compare actuarial presentvalue of promised retirement benefitswith market values of investments butmay instead assess the present valueof cash flows expected from theinvestments. Therefore, those in favourof this format believe that such acomparison is unlikely to reflect theactuary's overall assessment of the planand that it may be misunderstood. Also,some believe that, regardless of whetherquantified, the information aboutpromised retirement benefits should becontained solely in the separateactuarial report where a properexplanation can be provided.

IAS 26 accepts the views in favourof permitting disclosure of theinformation concerning promisedretirement benefits in a separate actuarialreport. It rejects arguments against thequantification of the actuarial presentvalue of promised retirement benefits.Accordingly, the formats described in(a) and (b) are considered acceptableunder IAS 26, as is the format describedin (c) so long as the financial statementscontain a reference to, and areaccompanied by, an actuarial report thatincludes the actuarial present value ofpromised retirement benefits.

Valuation of plan assets

Retirement benefit plan investmentsshall be carried at fair value. Formarketable securities, the fair value isthe market value. Where planinvestments are held for which anestimate of fair value is not possible(e.g. reliable measurement cannot beachieved), a disclosure explaining thereason for not using fair value isrequired. Where some investments arecarried at amounts other than marketvalue or fair value (e.g. market valueobtained from a thinly traded market),fair value (e.g. valuation technique) isgenerally disclosed, if not carried in thebooks.

Prescribed Disclosures

Financial statements of a retirementbenefit plan (either defined benefit ordefined contribution) shall contain thefollowing information:

1. a statement of changes in net assetsavailable for benefits

2. a summary of significant accountingpolicies

3. a description of the plan and theeffect of any changes in the planduring the period

Financial statements provided byretirement benefit plans include thefollowing, if applicable:

(a) a statement of net assets availablefor benefits disclosing:

(i) assets at the end of the periodsuitably classified;

(ii) the basis of valuation of assets;

(iii) details of any single investmentexceeding either 5% of the netassets available for benefits or 5%of any class or type of security;

(iv)details of any investment in theemployer; and

(v) liabilities other than the actuarialpresent value of promisedretirement benefits;

(b) a statement of changes in net assetsavailable for benefits showing thefollowing:

(i) employer contributions;

(ii) employee contributions;

(iii) investment income such as interestand dividends;

(iv)other income;

(v) benefits paid or payable (analysed,for example, as retirement, death anddisability benefits, and lump sumpayments);

(vi)administrative expenses;

(vii) other expenses;

(viii) taxes on income;

(ix) profits and losses on disposal ofinvestments and changes in valueof investments; and

(x) transfers from and to other plans;

(c) a description of the funding policy;

(d) for defined benefit plans, theactuarial present value of promisedretirement benefits (which maydistinguish between vested benefitsand non-vested benefits) based onthe benefits promised under theterms of the plan, on servicerendered to date and using eithercurrent salary levels or projectedsalary levels; this information maybe included in an accompanyingactuarial report to be read inconjunction with the relatedfinancial statements; and

(e) for defined benefit plans, adescription of the significantactuarial assumptions made and themethod used to calculate theactuarial present value of promisedretirement benefits.

The report of a retirement benefitplan contains a description of the plan,either as part of the financial statementsor in a separate report. It may containthe following:

(a) the names of the employers and theemployee groups covered;

(b) the number of participants receivingbenefits and the number of otherparticipants, classified asappropriate;

Cover Feature


(c) the type of plan-definedcontribution or defined benefit;

(d) a note as to whether participantscontribute to the plan;

(e) a description of the retirementbenefits promised to participants;

(f) a description of any plan terminationterms; and

(g) changes in items (a) to (f) during theperiod covered by the report.

It is not uncommon to refer to otherdocuments that are readily available tousers and in which the plan is described,and to include only information onsubsequent changes.

Notwithstanding the items whichare listed above, any information thatsupports the objective of reporting oris relevant to all participants as a groupshall be disclosed.

Comparative Indian Standard

The Accounting Standardcomparative to IAS 26 is underpreparation by the Institute of CharteredAccountants of India (ICAI).

Conclusion

Many retirement benefit plansprovide for the establishment ofseparate funds into which contributions

are made and out of which benefits arepaid. Such funds may be administeredby parties who act independently inmanaging fund assets. In India, thePension Fund Regulatory andDevelopment Authority (PFRDA) wasestablished in 2003 by Government ofIndia to act as a regulator for the pensionsector. As a first step towards institutingpensionary reforms, Government of Indiaand the State Governments moved froma defined benefit pension to a definedcontribution based pension system bymaking it mandatory for its newrecruits.q

CANCELLATION OF REGISTRATION UNDERREGULATION 25(1) OF CWA ACT, 1959

REGISTRATION NUMBERS CANCELLEDFOR JUNE-2010 EXAMINATION

UPTOERS/000904

NRS/001818 (EXCEPT 96, 119, 127, 140-145,488-499, 533-600, 901-923, 937-950)SRS/002191 (EXCEPT 2062–2104)

WRS/001818RSW/075376RAF/005824

RE-REGISTRATION

The students whose Registration Numbers have been cancelled (inclusive ofthe students registered upto 31st December-2002) as above but desire to takethe Institute’s Examination in June-2010 must apply for DE-NOVO Registrationand on being Registered DE-NOVO, Exemption from individual subject(s) atIntermediate/Final Examination of the Institute secured under their formerRegistration, if any, shall remain valid as per prevalent Rules.

For DE-NOVO Registration, a candidate shall have to apply to Director ofStudies in prescribed Form (which can be had either from the Institute’s H.Q.at Kolkata or from the concerned Regional Offices on payment of Rs. 5/-)along with a remittance of Rs. 2000/- only as Registration Fee through DemandDraft drawn in favour of THE ICWA OF INDIA, payble at KOLKATA.

Wishing you a very happy and Prosperous New Year.

Date: 27th January, 2010 Arnab Chakraborty,Director of Studies

Cover Feature


AS (15) - Accounting forRetirement Benefits in thefinancial statements ofemployer - Review andcomparative study ofAS- 15 with IAS-19 andFAS-36 (USA)S. Murugan*

Recently the audit findings ofnationalized banks revealed thatthe annual charge to the profits

towards future employees benefits wereinadequate so as to meet the committedlevel of employee benefits. The resultantaccumulated shortfall was found to bebeyond the reach of the banks torecoup from the normal businessoperation and sought permission torecoup in a distributed manner over theperiod of 3 to 5 years.

If this kind of blunder of grossnegligence could happen in aprofessionally managed organizedsectors, then the reliability of thedefined employee benefits is to bequestioned and the matter deserves athorough research. Applicability of theStandard

The enterprises which fall in anyone or more of the following categories,at any time during the accountingperiod:

(i) Enterprises whose equity or debtsecurities are listed whether in Indiaor outside India.

(ii) Enterprises which are in the processof listing their equity or debtsecurities as evidenced by the boardof directors’ resolution in thisregard.

(iii) Banks including co-operativebanks.

(iv)Financial institutions.

(v) Enterprises carrying on insurancebusiness.

(vi)All commercial, industrial andbusiness reporting enterprises,whose turnover for the immediatelypreceding accounting period on thebasis of audited financial statementsexceeds Rs. 50 crore. Turnover doesnot include ‘other income’.

Objective

The objective of this Statement isto prescribe the accounting anddisclosure for employee benefits. TheStatement requires an enterprise torecognize:

(a) a liability when an employee hasprovided service in exchange foremployee benefits to be paid in thefuture; and

(b) an expense when the enterpriseconsumes the economic benefit

*Deputy Manager/Finance, Bharat HeavyElectricals Ltd., Trichy Dt. Tamil Nadu.

arising from service provided by anemployee in exchange for employeebenefits.

Scope

1. This Statement should be appliedby an employer in accounting for allemployee benefits, except employeeshare-based payments.

2. This Statement does not deal withaccounting and reporting byemployee benefit plans.

3. The employee benefits to which thisStatement applies include thoseprovided:

(a) under formal plans or other formalagreements between an enterpriseand individual employees, groupsof employees or their represen-tatives;

(b) under legislative requirements, orthrough industry arrangements,whereby enterprises are required tocontribute to state, industry or othermulti-employer plans; or

(c) by those informal practices that giverise to an obligation. Informalpractices give rise to an obligationwhere the enterprise has no realisticalternative but to pay employeebenefits. An example of such anobligation is where a change in theenterprise's informal practices wouldcause unacceptable damage to itsrelationship with employees.

4. Employee benefits include :

(a) short-term employee benefits, suchas wages, salaries and socialsecurity contributions (e.g.,contribution to an insurancecompany by an employer to pay formedical care of its employees), paidannual leave, profit-sharing andbonuses (if payable within twelvemonths of the end of the period) andnon-monetary benefits (such asmedical care, housing, cars and freeor subsidised goods or services) forcurrent employees;

Cover Feature


(b) post-employment benefits such asgratuity, pension, other retirementbenefits, post-employment lifeinsurance and post-employmentmedical care;

(c) other long-term employee benefits,including long-service leave orsabbatical leave, jubilee or otherlong-service benefits, long-termdisability benefits and, if they arenot payable wholly within twelvemonths after the end of the period,profit-sharing, bonuses anddeferred compensation; and theaccounting for such benefits is dealtwith in the Guidance Note onAccounting for Employee Share-based Payments issued by theInstitute of Chartered Accountantsof India. 8 (d) termination benefits.Because each category identified in(a) to (d) above has differentcharacteristics, this Statementestablishes separate requirementsfor each category.

5. Employee benefits include benefitsprovided to either employees or theirspouses, children or otherdependants and may be settled bypayments (or the provision ofgoods or services) made either:

(a) directly to the employees, to theirspouses, children or otherdependants, or to their legal heirsor nominees; or

(b) to others, such as trusts, insurancecompanies.

6. An employee may provide servicesto an enterprise on a full-time, part-time, permanent, casual ortemporary basis. For the purpose ofthis Statement, employees includewhole-time directors and othermanagement personnel.

7. The following terms are used in thisStatement with the meaningsspecified: Employee benefits are allforms of consideration given by anenterprise in exchange for servicerendered by employees

Appraisal of Accounting Standard (15)

Employer - Employee relationship

The Standard does not define theterm " employee". Paragraph 6 of theStandard states that an employee mayprovide services to an enterprise to anenterprise on a full-time, part-time,permanent, casual or temporary basisand the term would also include hewhole-time directors and othersmanagement personnel. The Standardis applicable to all forms of employer-employee relationships. There is norequirement for a formal employeremployee relationship.

Employee benefits from informalrelationship

Paragraph 3 (c) of the Standarddefines employee benefits to includethose informal practices that give riseto an obligation where the enterprisehas no realistic alternative but to payemployee benefits.

Carried forward for Earned leave

Paragraph 7.2 of the Standarddefines 'Short-term' benefits asemployee benefits (other thantermination benefit) which fall duewholly within twelve months after theend of the period in which the employeerender the related service. Paragraph 8(b) of the Standard illustrates the term'Short-term benefits' to include "shortterm compensated absences (such aspaid annual leave) where he absencesare expected to occur within twelvemonths after the end of the period inwhich the employees render the relatedemployee service".

Measurement of cost of compensatedabsence

The cost of compensated absencesshould be measured as the additionalamount the enterprise expects to payas a result of the used entitlement.When an employee avails the leave at afuture date the cost of such leave wouldbe the compensation and otherbenefits, which the employee would e

paid for the period of his absence. Insome enterprises the amount payableto an employee on encashment wouldbe paid in case the leave is availed. Forinstance, an enterprise could have apractice of paying only basic wagewhen leave is enchased whereas heemployee would be entitled to basicwage, allowances and other benefitswhen the leave is availed. Suchsituations would require estimation forthe additional amount the enterpriseexpects to pay.

Carried forward of sick leave upto thetime of retirement

Sick leave is one of the types ofcompensated absences. Sick leave isconditional on the future event of anemployee reporting sick. An obligationarises as the employee renders service,which in creases the employee'sentitlement (Conditional orunconditional) to future compensatedabsences. Accumulating paid sick leavecreates an obligation because anyunused entitlement increases theemployee's entitlement to sick leave infuture periods. The probability that theemployee will be sick in those futureperiods affects the measurement of thatobligation, but does not determinewhether that obligation exists.

Concessional loan given to employees- Employee benefit

There granting of a loan by anenterprise to an employee at aconcessional rate of interest results ina benefit to an employee. At presentthe value of such benefit is recognizedover he period of the loan by accountingfor the interest income at the stipulatedrate instead of at the market rate.

Interest from Provident Fund - Definedbenefit plan or defined contributionplan

Section 17 of the EmployeeProvident Funds (EPF) Act, 1952empowers the Government to exemptany establishment from the provisions

Cover Feature


of the Employees' Provident Scheme,1952 provided that the rules of theprovident fund set up by theestablishment are not less favorablethan those specified in section 6 of theEPF Act and the employees are also inenjoyment of other provident fundbenefits which on the whole are not lessfavorable to the employees than thebenefits provided under the Act.

Accordingly, provident funds set upby employers, which require interestshortfall to be met by the employerwould be in effect defined benefit plansin accordance with the requirements ofparagraph 26(b) of AS 15.

Gratuity benefit scheme covered undergroup insurance scheme

A key distinction between definedcontribution plans and defined benefitplan is that in the case of defined benefitplans the actuarial risk (that benefit willcost more than expected) andinvestment risk fall, in substance, on theenterprise. If actuarial or investmentexperience are worse than expected, theenterprise's obligation may beincreased. Where a gratuity scheme iscovered under an insurance policy, thepayments to the insurance companyunder the policy would not beconsidered a defined contributions if theactuarial risk and investment risk isborne by the enterprise.

Separate trust created by enterprise toadminister a defined benefit plan

Where an enterprise has created aseparate trust to administer a definedbenefit plan, the fair value of the trustassets (net of liabilities) out of whichthe obligations are to be settled directlywould be deduced from the presentvalue of the defined benefit obligationand the net total would be recognizedin the Balance Sheet.

Defined benefit scheme covered undera Group Gratuity scheme

In the case of defined benefitschemes covered under a Group

Gratuity or other defined benefit schemewith an insurance company where theactuarial risk and investment risk havenot been transferred from theenterprise, the actuarial valuationcertificate provided by the insurancecompany can be relied upon by theenterprise.

Treatment of under provisioning madeunder pre-revised AS-15

Enterprise to which the pre-revisedAS 15 was applicable, were required tocomply with the provisions of theStandard in the preparation andpresentation of the financial statements.In case an enterprise had not created aprovision for retirement benefits as perthe earlier Standard, the amount ofbenefit as at the commencement of thefinancial year when the revisedStandard is first applied would be priorperiod item as it represents an omissionin the preparation of the financialstatements of earlier periods.

Disclosure requirements in respect ofaccounting policies on revised standard

Accounting policies refer to the specificaccounting principles and othermethods of applying those principlesin the preparation and presentation offinancial statements. Accordingly, anychange in the application for theprinciples of accounting for employeebenefits based on the revised AS 15 ascompared to the pre-revised Standardincluding the methods of applyingthose principles would be a change inaccounting policy and should be dealtwith as per the requirements ofparagraph 32 AS 5.

Gratuity

l Contribution by the employer to thefund may be own fund created undertrust or to any insurance company.

l Contributions to be calculated onthe basis of acturial valuation forboth of above cases.

l Contributions to be based onestimated salary at the time ofretirement.

l The difference between theestimated provision made every yearand actual gratuity paid at the timeof retirement to be booked in Profitand Loss account of the year ofretirement.

l As there is possible to have hugedifference between provisions andactual gratuity, the estimate shouldmore accurate

l The provisions of the earlier yearsmay have to be adjusted due toretrospective effect of wagerevision, changes in Govt. policiesetc.

l But, the standard is silent about suchprior period adjustment of provisionin the current year which result inhuge amount of booking expensesin the year retirement andunnecessarily lowering the profit ofthe enterprises.

Encashment of Earned Leave and sickleave

l Contributions are made out of ownfunds

l Contributions / provisions are madebased on actuarial valuation and

l On the basis of pattern/ ratio ofavailing and encashment of leaves

l Provisions are based on estimatedwages at the time of retirement.

l The difference between estimatedwages and actual wages at the timeof retirement to be booked in theprofit and Loss account of the yearof retirement.

l Many enterprises has twocategories of earned leave -encashable and non- encashable.

l These leaves are credited toemployees account with suchdistinction.

l Encashable leaves may encashedeither during the service or at thetime of retirement.

l But, non- encashable can beencashed only at the time ofretirement.

Cover Feature


l The provisions for the encashmentof earned leave to made for bothcategories of the leave.

l But, the standard does not explicitlymentioned to make provision for theboth categories.

l There may be difference betweenthe amount paid on availing theleave and encashment either duringthe service or on retirement due toPF contributions and Dearnessallowance given on availing leavealone.

l The method of treatment of suchdifference is not stated in theStandard.

l Similar to gratuity, there may bechanges in prior period provisionsdue to changes in wage revisioneffected retrospectively from theprevious year.

l The standard is silent on about point.

Similarly there may be changes inthe ratio of leave availed and encashedby employees. Hence, such ratio to bestudied periodically and if any changein it, suitable corrections to be done inthe provisions with a view to avoid widedifference between provision madeduring the years and actually paid atthe time of retirement.

The standard is silent on the on theabove point.

The earned leave can beaccumulated by employees only uptoto the maximum limit as fixed by theorganization. Whenever theorganization changes the maximum limitat any time, not only the current yearprovision to be modified but also theearlier years provisions to be adjusted,otherwise it will affect the expensesbooked in the profit and loss A/c of theyear of retirement.

The standard is silent on the abovesituation.

Encashment of earned leave at timeof retirement is taxable subject to limitand that of sick leave is fully taxable.

Any change in above tax laws willreflect the behavior of employees inavailing/ encashing the earned leaveduring the service.

Hence, if there is any change in thetax laws the ratio of availing /encashment of leave to be reviewed andprovisions to be adjusted suitably.

Provident fund

Contributions may be made to theContributory Provident Fundadministrated by Central Govt. or ownfund created under trust.

Disbursement on retirement will befrom such trust or CPF administratedby Central Govt.

The contributions to the fund is onlyon cash basis, hence, on payment ofarrears of contributions suitableadjustments to be done in prior periodprovisions to avoid unnecessary excessbooking of expenses in year or paymentof such arrears. The interest on sucharrears also to adjusted suitable.

Medical facility

There may be reimbursement ofmedical expenses of retired employeesor providing medical facilities by theemployer.

Standard insist to book theexpenses of reimbursement and it issilent in booking expenses of medicalfacility provided to retired employees.However suitable amount to booked forproviding medical treatment to retiredemployees as the number of retiredemployees taking medical treatment inhospital of their ex- employer is variablein number and uncertain.

Pension

There may be contributory or noncontributory schemes.

In contributory pension scheme,contributions may be deposited in ownfund or family pension fund maintainedby Central Govt.

In either case the expenses ofcontributions to be booked in the profit

and loss account of the relevant year.

Disbursement of funds are from thefund.

Illustrative Disclosures

Appendix B

This appendix is illustrative onlyand does not form part of theStatement. The purpose of theappendix is to illustrate theapplication of the Statement toassist in clarifying its meaning.Extracts from notes to the financialstatements show how the requireddisclosures may be aggregated inthe case of a large multi-nationalgroup that provides a variety ofemployee benefits. These extractsdo not necessarily provide all theinformation required under thedisclosure and presentationrequirements of AS 15 (2005) andother Accounting Standards. Inparticular, they do not illustrate thedisclosure of:

(a) accounting policies for employeebenefits (see AS 1 Disclosure ofAccounting Policies). Paragraph120(a) of the Statement requires thisdisclosure to include the enterprise'saccounting policy for recognisingactuarial gains and losses.

(b) a general description of the type ofplan (paragraph 120(b)).

(c) a narrative description of the basisused to determine the overallexpected rate of return on assets(paragraph 120(j)).

(d) employee benefits granted todirectors and key managementpersonnel (see AS 18 Related PartyDisclosures).

Comparison with IAS 19, EmployeeBenefits (as amended in December 2004)Revised AS 15 (2005) differs fromInternational Accounting Standard(IAS) 19, Employees Benefits, in thefollowing major respects:

Cover Feature


1. Recognition of Actuarial Gains andLosses

IAS 19 provides options torecognize actuarial gains and lossesas follows :

(i) by following a 'Corridor Approach',which results in deferredrecognition of the actuarial gainsand losses, or

(ii) immediately in the statement ofprofit and loss, or

(iii) immediately outside the profit orloss in a statement of changes inequity titled 'statement ofrecognised income and expense'.

The revised AS 15 (2005) does notadmit options and requires that actuarialgains and losses should be recognisedimmediately in the statement of profitand loss. The following are the reasonsof requiring immediate recognition in thestatement of profit and loss:

(a) Deferred recognition and 'corridor'approaches are complex, artificialand difficult to understand. Theyadd to cost by requiring enterprisesto keep complex records. They alsorequire complex provisions to dealwith curtailments, settlements andtransitional matters. Also, as suchapproaches are not used for other

uncertain assets and liabilities, it isnot appropriate to use the same forpost-employment benefits.

(b) Immediate recognition of actuarialgains and losses representsfaithfully the enterprise's financialposition. An enterprise will reportan asset only when a plan is insurplus and a liability only when aplan has a deficit. Framework for thePreparation and Presentation ofFinancial Statements notes that theapplication of the matching conceptdoes not allow the recognition ofitems in the balance sheet which donot meet the definition of assets orliabilities. Deferred actuarial lossesdo not represent future benefits andhence do not meet the Framework'sdefinition of an asset, even if offsetagainst a related liability. Similarly,deferred actuarial gains do not meetthe Framework's definition of aliability.

(c) Immediate recognition of actuarialgains and losses generates incomeand expense items that are notarbitrary and that have informationcontent.

(d) The primary argument for the'corridor approach' is that in the longterm, actuarial gains and losses may

offset one another. However, it is notreasonable to assume that allactuarial gains 56 or losses will beoffset in future years; on thecontrary, if the original actuarialassumptions are still valid, futurefluctuations will, on average, offseteach other and thus will not offsetpast fluctuations.

(e) Deferred recognition by using the'corridor approach' attempts toavoid volatility. However, a financialmeasure should be volatile if itpurports to represent faithfullytransactions and other events thatare themselves volatile.

(f) Immediate recognition is consistentwith AS 5, Net Profit or Loss for thePeriod, Prior Period Items andChanges in Accounting Policies.Under AS 5, the effect of changesin accounting estimates should beincluded in net profit or loss for theperiod if the change affects thecurrent period only but not futureperiods. Actuarial gains and lossesare not an estimate of future events,but result from events before thebalance sheet date that resolve apast estimate (experienceadjustments) or from changes in theestimated cost of employee service

Employee Benefit ObligationsThe amounts (in Rs.) recognised in the balance sheet are as follows:

Defined benefit pension plans Post-employment medical benefits

20X5-20X6 20X4-20X5 20X5-20X6 20X4-20X5Present value of funded obligations 20300 17400 - -Fair value of plan assets 18420 17280 - -

1880 120

Present value of unfunded obligations 2000 1000 7337 6405Unrecognised past service cost -450 -650 0 0

Net liability 3430 470

Amounts in the balance sheet:Liabilities 3430 560 7337 6405Assets 0 -90 0 0Net liability 3430 470 7337 6405

Comparison of Accounting Standard (15) with International Accounting Standards (IAS-19)International Accounting Standard (IAS)

Cover Feature


before the balance sheet date(changes in actuarial assumptions).

(g) Any amortisation period (or thewidth of a 'corridor') is arbitrary.

(h) Actuarial gains and losses are itemsof income and expense. Recognitionof such items outside the statementof profit and loss, as per the option(iii) above is not appropriate.

(i) Immediate recognition requires lessdisclosure because all actuarialgains and losses are recognised.

(j) Immediate recognition is alsopermitted under IAS 19. Providingonly one treatment is in line with theICAI's endeavour to eliminatealternatives, to the extent possible.

(k) The existing AS 15 (1995) alsorequires immediate recognition ofactuarial gains and losses.

2. Recognition of Defined BenefitAsset

Both IAS 19 and revised AS 15(2005) specify an 'asset ceiling' in caseof a situation of defined benefit asset.AS 15 (2005) provides that the assetshould be recognised only to the extentof the present value of any economicbenefits available in the form of refundsfrom the plan or reductions in futurecontributions to the plan. IAS 19, onthe other hand, provides that the assetshould be recognised to the extent ofthe total of (i) any cumulativeunrecognised net actuarial losses andpast service cost; and (ii) the presentvalue of any economic benefits availablein the form of refunds from the plan orreductions in future contributions to theplan. IAS 19, however, also providesthat the application of this should notresult in a gain being recognised solelyas a result of an actuarial loss or pastservice cost in the current period or in aloss being recognized solely as a resultof an actuarial gain in the current period.The aspect with regard to unrecognisednet actuarial losses is not relevant inthe context of revised AS 15 (2005) since

it does not permit the adoption of'corridor approach'. In respect of pastservice cost, it is felt that in a situationof defined benefit asset, the asset, tothe extent of unrecognised past servicecost, should not be required to berecognised in view of the prudenceconsideration for preparation offinancial statements 57.

3. Disclosures

As compared to IAS 19, AS 15 (2005)requires lesser disclosures in respect ofdefined benefit plans considering theinformation overload. For example, whileIAS 19 requires disclosure of sensitivityinformation, five year histories ofpresent value of the defined benefitobligations, fair value of plan assets,experience adjustments arising on planliabilities and plan assets etc., AS 15does not require the same.

Termination Benefits - Recognitionof Liability IAS 19 provides that anenterprise should recognise terminationbenefits as a liability and an expensewhen, and only when, the enterprise isdemonstrably committed to either

(a) terminate the employment of anemployee or group of employeesbefore the normal retirement date;or

(b) provide termination benefits as aresult of an offer made in order toencourage voluntary redundancy. Itfurther provides that an enterpriseis demonstrably committed to atermination when, and only when,the enterprise has a detailed formalplan for the termination and iswithout realistic possibility ofwithdrawal. It is felt that merely onthe basis of a detailed formal plan, itwould not be appropriate torecognise a provision since aliability cannot be considered to becrystalised at this stage.Accordingly, the revised AS 15(2005) provides criteria forrecognition of liability in respect oftermination benefits on the lines of

AS 29, Provisions, ContingentLiabilities and Contingent Assets.

Transitional Provisions

In respect of transitional liability fordefined benefit plans, IAS 19 providesthat if the transitional liability is morethan the liability that would have beenrecognised at the same date under theenterprise's previous accounting policy,the enterprise should make anirrevocable choice to recognize thatincrease as part of its defined benefitliability (a) immediately, under IAS 8 NetProfit or Loss for the Period,Fundamental Errors and Changes inAccounting Policies; or (b) as anexpense on a straight-line basis over upto five years from the date of adoptionsubject to certain conditions. IAS 19 alsorequires that if the transitional liabilityis less than the liability that would havebeen recognized at the same date underthe enterprise's previous accountingpolicy, the enterprise should recognizethat decrease immediately under IAS .

Review on Financial AccountingStandards (FAS)-36 Accounting andReporting by Defined Benefit PensionPlans (USA)

FAS 36 Summary

There is a need for comparability indisclosures about the financial statusof pension plans made in employers'financial statements. Accordingly, thisStatement requires revised disclosuresabout defined benefit pension plans inemployers' financial statements. Therevised disclosures include the actuarialpresent value of accumulated planbenefits and the pension plan assetsavailable for those benefits, both asdetermined in accordance with FASBStatement No.35, Accounting andReporting by Defined Benefit PensionPlans. Employers having plans forwhich accumulated benefit informationis not available will (1) continue to makethe disclosures with respect to vestedbenefits called for by APB Opinion No.8, Accounting for the Cost of Pension

Cover Feature


Plans, and (2) disclose the reasons whythe information required by thisStatement is not provided

Findings & Suggestions

1. Provision for both Categories ofEarned Leave :

In many enterprises, Earned leaveincludes two categories - encashable &non - encashable. The non- encashableearned eave can be encashed only atthe time of retirement. Few enterprisesare of the view that earned leave forencashable purpose means onlyencashable earned leave, but not nonencahsable leave.

The AS-15 does not explicitlymentioned about the necessity ofmaking provision for both.

For instance, an employee manyhave encashable earned leave of 250days and non encashable earned leaveof 75 days. Provision to be made forboth, otherwise the provision will beunder stated.

Hence, the Accounting Standard tobe modified such that provision to bemade for both the type of earned leave

2. Booking Expense / Provision ofPost-retirement Medical Facility

For post- retirement medical facilityprovided by the employer, the provisionfor the same is not insisted by AS15.As the beneficiaries of such facility isvariable in number and uncertain,provision to be made.

For instance, if an employer providemedical facilities to all his existing andretired employees, the necessaryprovision to be made for expensedincurred for the treatment of retiredemployees.

Hence, the Standard to be changedsuch that expenses to be booked forthe treatment of retired employees likereimbursement of medical expenses.

3. Treatment of Difference betweenCurrent Years Salary and Last DrawnSalary

Treatment for difference betweenprovision made every year for gratuityand earned leave on the basis of currentyear salary and actual amount paid onthe basis of last drawn salary at the timeof retirement is not stated in AS-15

The provision of gratuity and leaveencashment to be made on the basis ofestimated salary at the time ofretirement. However, most of theorganizations are making provision onthe basis of current year salary only.Hence, the treatment of difference is notmentioned in AS15

For instance, existing monthly salaryof an employee Rs 15,000 and hisestimated salary at the time ofretirement after 10 year is Rs25,000. I fthe provision is made on the basis ofRs15,000. Then at the time of retirementthe gratuity and leave encashment willbe on the basis higher than Rs 15,000,hence the difference will be booked inthat year's profit and Loss account andprofit will be unnecessarily reduced.

Necessary provision to be includedin standard that provision to be madeonly on the basis of estimated salary atthe time of retirement.

4. Treatment of Difference betweenAvailment and Encashment of EarnedLeave

Differential benefits betweenavailment and encashment of leave(salary elements not considered forencashment- eg. PF on encashment) andwhere it goes on encashment, notmentioned in the AS-15. The method oftreatment of such difference is notstated in the Standard.

For instance, while availing theearned leave an employee may get hissalary of Rs 10,000 and also theemployer's contribution to PF Rs 1200(12% on 10,000), however if he encashthe leave he will get only Rs10,000. Themethod of treatment of difference ofRs1200 is not stated in AS-15.

Necessary modification to be done

in the Standard to include treatment ofabove difference.

5. Adjustment of Prior PeriodProvision on Retrospective Changes inSalary

The provisions of the earlier yearsmay have to be adjusted due toretrospective effect of wage revision,changes in Govt. policies etc. The AS-15 do not state anything on it.

For instance, the monthly salary ofan employee for the year 2XX1.2XX2and 2XX3 were Rs 15,200,15900and17,100 respectively. The provisionfor Gratuity and leave encashment wasdone accordingly On retrospectivewage revision the salary of the employeewas hiked to Rs 17,500,19,950 and21,500 for the above years. Thenecessary adjustment for the differentialamount of Rs2,300, Rs4050 and Rs4,400to be done in the relevant years.

Hence, necessary modification tobe done in the standard to include theadjustment of the above difference.

6. Treatment of Difference due toChange in Ratio of Leave Availment &Encashment

There may be changes in the ratioof leave availed and encashed byemployees, suitable corrections to bedone in the provisions with a view toavoid wide difference betweenprovision made during the years andactually paid at the time of retirement.The standard is silent on the on theabove point.

For instance, as per the study theratio of earned leave availed andencashed may be 80:20 these ratio maybe changed at any time accordinglyprovision to be modified.

Necessary modification to be donein Standard to state the periodic studyof the pattern of availing and encashingthe leave by the employees.

7. Treatment of Adjustment ofProvision due to Change in MaximumLimit of Accumulation of Earned Leave

Cover Feature


The earned leave can beaccumulated by employees only uptoto the maximum limit as fixed by theorganization. Whenever the organiza-tion changes the maximum limit at anytime, not only the current year provisionto be modified but also the earlier yearsprovisions to be adjusted, otherwise itwill affect the expenses booked in theprofit and loss A/c of the year ofretirement. The standard is silent on theabove situation.

For instance, the maximum limit ofleave accumulation by the employeesin an organization may be 300 dayswhich may be increased by theorganization to 325 days at any time andhence the earlier years provision to beadjusted and current and subsequentyear provisions to be done as perrevised limit on accumulation of leave.

The standard to be changed toinclude the necessity of adjusting theearlier years provisions.

8. Adjustment due to Delayed Paymentof Provident Fund Contri-bution

The contributions to the fund is onlyon cash basis, hence, on payment ofarrears of contributions suitableadjustments to be done in prior periodprovisions to avoid unnecessary excessbooking of expenses in year of paymentof such arrears. The interest on sucharrears also to be adjusted suitably.

For instance, the total ProvidentFund contributions of an employer forthe month of march of the previous yearwas paid only on June of thesubsequent year. Hence, PF provisionof the previous year would be less andsubsequent year will be high.

Necessary inclusion in the standardto be done include the accrual basistreatment of Provident Fundcontributions by the Employer.

Conclusion

Indian Accounting Standards forRetirement Benefits in the financialstatements of employer has by and largeadequately addressed the employee'sbenefits.

However, in line with InternationalAccounting Standards some modifica-tions are to be done in the IndianStandards.

As in India, employee welfaremeasures are now only started, theIndian standard is to be updatedcontinuously till the employee's welfaremeasures are fully completed.q

PEOPLE AT THE HELM

Mr. Sunil Kumar Jain, M-11875, a Cost Accountant of 1989 batch, and Company Secretaryby qualification, has recently been promoted as Chief Financial Officer - CE & HA businessof Videocon Industries Limited. Mr. Jain has served as Vice Chairman of AurangabadChapter of Cost Accountants during the term 2004-2006, and actively participated in variousinitiatives at the Chapter.

RETIREMENT

Shri Bimalendu Chakraborty has retired from the services of the Institute on January31, 2010 after a long and distinguished innings. We wish Shri Chakraborty a happyand healthy life in future years.

Cover Feature

HEARTY CONGRATULA TIONS

Shri M P Gupta, member of ICWAI has been promoted as JointGeneral Manager, Finance in M/s HMT Limited (Tractor BusinessGroup), Pinjore w.e.f. July 1, 2009. We wish Shri Gupta the very bestin his future role.


Cover Feature

Life InsuranceA. L. Prasad*

Services sector now constitute asignificant portion of oureconomy. There is therefore need

for creating cost consciousness in theseareas so as to maintain efficiency.

The relationship between Input andOutput is necessary for performancemeasurement. Cost Accounting systemis best suited for building input outputrelationship.

Insurance be it Life or General is animportant service to the society. Whenour economy has been opened forPrivate and Foreign companies,regulatory bodies need reliable data forfixation of charges for different services.Cost data are important drivers forperformance measurement. Insurancecompanies incur cost for different typesof activities. There is need fordeveloping proper cost accountingsytem for working out cost of theseactivities. In the absence of reliable costinformation for different activities firmguidelines cannot be laid down foradministering the above charges. Thusit is necessary to build cost accountingrecords for different charges. Action forcontrolling and reducing the chargescannot be taken in the absence of propercost data. The need for aboveinformation becomes more important inwelfare state when Government want tosubsidies certain types of services.

The business of Life Insurance isdifferent from other businesses in thesense that money lying with insurancecompanies is hard earned money ofcommon man who have invested it afteryears of saving for safety and growth.Any lapse in the management of LifeInsurance business directly affects thelife of common man.

Life Insurance provides big relief tothe people in case of some mishap or

untimely death of the Insured. In awelfare state like ours, in the absenceof insurance, protection to the insured’sfamily becomes the responsibility of thestate. This way life insurance companieshelp the state in mitigating its socialresponsibilities. The Life Insurancecompanies help the state and thesociety yet in another way. That is byinvesting the money lying with them inGovernment Bond and shares andsecurities of Public and Private sectorenterprises. Life Insurance thereforeserves the interest of both the state andthe society. Life Insurance, therefore isneed of modern day life.

The products of each Life Insurancecompany are different and unique. Eachproduct is having an attractive name andalluring features. In actual practice thereal benefit to the common man isdifferent from what is stated in theliterature of each product. Common manfails to understand the underlying ideabehind this. In many cases the real thingis not even explained to them properly.The insurance companies camouflagethe people with rosy pictures of theirproducts. The result is that at the timeof claim or maturity when people do notget what they expect, frustration startsand they loose interest in Insurance.Insurance appears to them a liabilityinstead of necessity.

Life Insurance companies selldifferent types of Policies to the people.The different Policies being offered bythe Life Insurance companies to thepeople fall under the following maincategories:

Term Plan, Endowment Plan andULIPS (Unit Linked Insurance Plan)

The terms and conditions of bothTerm plan and Endowment plan aresimple and not difficult to comprehend.ULIPS on the other hand combines thefeatures of both Life Insurance as well

as Investment. Part of the premiumreceived from ULIP policy holders isused for Life cover and balance amountis invested in different types of Funds–Equity Fund, Debt Fund, Balance Fundetc. as decided by the policy holder.Other Policies being sold in the marketsuch as Whole life policy, Money backpolicy Pension plans etc are onlyvariations of the above.

The Insurance first invests thepremium and then deduct followingcharges by cutting equivalent numberof units. (i) Mortality Charges. (ii)Administrative Charges (iii) FundManagement Charges (iv) AllocationCharges etc. There is need for workingout cost of above charges.

The Insurance companies are doingbusiness in hundreds and thousandsof crores. In the absence of properrecord regarding the above charges itis not possible to do justice to thepolicy holders money lying withInsurance companies. There is need forcontrolling arbitrariness of differentcharges being recovered by theInsurance companies. This assumesgreater significance because entiremoney lying with Life Insurance is hardearned money of Common man who hasinvested the same with Insurancecompanies after saving it for a numberof years for safety and growth.

It is true that policy holders moneyis kept in Trust and the Trust investsthe same in different Funds such asEquity Fund, Debt Fund, Balance Fundetc. There is however need for examininghow the charges for the above fundsare worked out.

I have gone into the above matterand have developed a Format forworking out the cost of different lifeinsurance products. The Formats forworking out cost of different LifeInsurance products are enclosed forscrutiny. Members are requested to gothrough the same and offer theircomments/suggestions so that thesame can be improved further.*AICWA


Cost Statement of a Term Plan

Sr Elements of Cost Amount1 Salaries and wages2 Mortality charges3 Rental charges4 Depreciation5 Selling and Distribution Overhead6 Administrative Overhead7 Total Cost8 Cost per plan

Cost Statement of an Endowment Plan

Sr Elements of Cost Amount1 Salaries and wages2 Depreciation3 Rental charges4 Selling and Distribution Overhead5 Administrative Overhead6 Total Cost7 Cost per plan

Cost Statement of an Investment Plan

Sr Elements of Cost Amount1 Salaries and wages2 Depreciation3 Rental charges4 Fund Management Charge5 Selling and Distribution Overhead6 Administrative Overhead7 Total Cost8 Cost per plan

Cost Statement of an ULIP

Sr Elements of Cost Amount1 Salaries and wages2 Depreciation3 Mortality Charge4 Fund Management5 Rental charges6 Selling and Distribution Overhead7 Administrative Overhead8 Total Cost9 Cost per plan

Working notes - 1

Concordance List of Life Insurance policies & Life Insurance Products

Sr Life Insurance Policies Life Insurance ProductsName of Policy Numbers Life Insurance Investments

1 Term Policy 250 2502 Endowment Policy 200 200

ULIPS1 Single 200 2002 Single 200 2003 *Double 650 650 650

Total 1500 1100 10502150650*1500

Working Notes 2Selling & Distribution Overhead

Sr Elements of Cost Amount1 Salaries and wages2 Agents’ Commission3 Brokerage4 Advertisement5 TOTAL 0

Working Notes 3Administration Overhead

Sr Elements of Cost Amount1 Salaries and wages2 Printing Charges3 Office expenses

Total 0

Cover Feature


Accrual Accounting inGovernment :An Analytical ViewAccrual Account is a new solution for effective management of accounting functionthat gives an accurate financial performance and position for any organizationincluding government. The present paper is a modest attempt to discuss on theconceptual frame work, comparison, transition and principles of accrualaccounting in government with suitable illustrations and a case analysis in acomprehensive manner.

Dr. T. Satyanarayana Chary*K.Vara Prasad**

*Associate Professor and Chairman Boardof Studies, Department of Commerce,Telangana University, Nizamabad, AndhraPradesh - 503175. He can be reached [email protected]**Auditor, State Audit Department,Hyderabad, Andhra Pradesh. He can bereached at [email protected]

Introduction

A ccounting and FinancialReporting standards (AFRS)are essential for improved

public accountability and efficientfunctioning of our democratic systemof company type of business. AFRSplay a pivotal role in fulfilling theGovernments responsibility to beaccountable for its acts of omission andcommission while expending the moneyfrom the public exchequer. Besides,AFRS can also facilitate a betterunderstanding of the decision makingprocess vis -a - vis economy, polity andsociety, which in turn enhances betterunderstanding of the impact ofdecisions of the government on thesociety directly. Not only that, even theyprovide a standardized frameworkwithin which the financial position ofgovernment can be assessed as it is thehallmark of democratic governance.

Government Accounting in Indiawas cash basis accounting. It records

transactions only when cash is receivedor paid during the reporting period.There is no recognition to theexpenditure incurred but not paid andthe income earned but not received.Distinction between capital and revenuenature transactions is maintained inaccounts at the time of recording.Similarly, this system also maintainsincomplete or partial asset accountingas well as liability accounting procedure.Not only that, violation of principle ofmatching expenditure with revenue, nonrecognition of some period costs likedepreciation, cost of governmentservices etc, are not identifiable underthis system.

As a fact known to everyone, theGovernment was following the methodof cash base accounting system in Indiathat was found as incomprehensive one.hence, the growing converge betweenpublic and private accountingstandards and practices created a needto review the conceptual frameworkunderpinnings of governmentaccounting system and deficiencies incash base system to ensure an effectivefinancial management and greatertransparency. In this direction, theTwelfth Finance commissionrecommended adoption of AccrualBased Accounting (ABA) for the unionand the state governments. The central

government has accepted therecommendation and the financeminister directed the GovernmentAccounting Advisory Board (GASAB)and CAG to recommend an operationalframe work and a road map for itsimplementation.

The Concept of Accrual BasedAccounting (ABA)

ABA refers to a set of accountingprinciples used for recording the eventsthat determine when the effects oftransaction or events are recognized forfinancial reporting purposes. It trulyrecognizes economic value of financialflows transferable, exchangeable,extinguishable, whether or not cash isexchangeable at that time. Theassociated cash flows generally followthe event after sometime and may ormay not take place during the sameaccounting period. In this system ofaccounting, transactions enter in booksof accounts when they become due, inwhich book-keeping shifts from singleentry to double entry system. Infact, inthe cash system of accountingtransactions are entered when there isactual flow of cash and revenue isrecognized only when it is actuallyreceived as well as expenditure isrecognized only on the outflow of cash.

Hence, transition from only cashsystem to cash and accrual system canensure many benefits as bettermanagement of receivables andpayables, which has been highlyneglected by the government in the pastand better Assets & Liabilitiesmanagement that needs to be focusedso as to improve the same for theeffective Accountability. Besides,better management of contingentLiabilities considered to flow fromaccrual accounting is also expected.Hence, this system can also bring intothe forth and provide the followingbenefits.

1. Assessment of full cost and servicedelivery.

Accounting Issues


2. Assessment of fiscal sustainabilityof operations.

3. Assessment of Liquidity position ofgovernment

4. Better understanding andappreciation of financial statements.

5. Provides comprehensive infor-mation on financial position

6. Assists in ascertaining futuresustainability of programmes.

7. Provides the operating performanceof an entity.

8. Discloses the Accounting policiesused in preparation of financialstatement for better understanding

9. Assures optimal use of scarceresources.

10. Provides information on expensesthat help in knowing theconsequences of cost policies andenables comparison with alternativepolicies.

11. Subsidy calculation can beextracted from the accounts, thathelps in Rationalization.

12. Information on income streams tomeet short and Long term liabilitiesand to assess the payment period(short or long) and nature (cheap orcost).

13. Tax assessed but not received, Billsraised but not paid, liabilitiesoccurred but not paid will beaccounted for.

14. Accrual accounting system retainsthe advantages of Cash andovercomes the limitations byinclusion of Cash as a base item.

Flow statement & FinancialStatement.

Hence, the advantages of AccrualAccounting in social sector as thegovernment engaged in such activitiesis numerous in nature as the AccrualSystem assist the government inmeeting its objectives of Accuracy,Granularity and Comparability. Besides,it can also ensure better control on

resources and operations so as to ableto stand up to the scrutiny ofstewardship, an essential element ofdemocratic functioning, on the otherhand, per unit cost of service is one ofthe important parameter in governmentfor performance evaluation of adepartment of the governmentorganization. Through ABA clear viewof financial position of the governmentwith transparency and optimization ofresources is possible. Finally, it can beasserted that ABA can act as a tool formanagerial decision making for thegovernment, to achieve their objectivesefficiently and effectively.

Cash Vs Accrual Basis Accounting

Cash basis accounting is a verysimple form of accounting when apayment is received for the sale ofgoods or services, a deposit is made,and the revenue is recorded as of thedate of the receipt of funds -no matterwhen the sale was made. Checks arewritten when funds are available to paybills, and the expense is recorded as ofthe check date-regardless of when theexpense was incurred. The primaryfocus is on the amount of cash in thebank and the secondary focus is onmaking sure, all bills are paid. Little effortis made to match revenues to the timeperiod in which they are earned, or, tomatch expenses to the time period inwhich they are incurred.

Accrual basis accounting matchesrevenues to the time period in whichthey are earned and matches expensesto the time period in which they areincurred. While it is more complex tocash basis accounting, it provides muchmore information about the business.Hence, the accrual basis allows us totrack receivables (amounts due fromcustomers on credit sales) and payables(amounts due to vendors on creditpurchases). The accrual basis alsoallows us to match revenues to theexpenses incurred in earning them, andgives us more meaningful financialreports (See table I and Exhibit III to

understand well the differences betweenCash Basis and Accrual BasisAccounting System).

Transition Towards Accrual Accounting

Internationally Accrual Accountinghas been introduced as a part of widermanagement reforms in public sector.Countries namely Australia, Canada,UK and Newzland have approached theissue of accounting reforms and havebeen successful to a large extent.Countries such as USA and Spaincombined the Modified AccrualAccounting (MAA) with cashbudgeting. Hence the shift towardsaccrual accounting is conspicuous inIndia as well as many local bodies -Panchayati Raj institutions andmunicipal bodies etc. To ensureuniformity of practices in this regard,there is a need for formulation of a singleset of high quality financial reportingstandards for local bodies, which willset out recognition, measurement,presentation and disclosurerequirements dealing with transactionsand events in general for the purposeof financial statements of local bodies.Recognizing the need to harmonize andimprove accounting and financialreporting among Local Bodies, theInstitute of Charted Accountants ofIndia (ICAI), constituted the Committeeon Accounting Standards for LocalBodies.

The composition of the Committeeon Accounting Standards for LocalBodies is broad based and ensuresparticipation of all active and interestgroups. The committee hasrepresentatives of Comptroller andAuditor General, Controller General ofAccounts, National Institute of UrbanAffairs, Ministry of UrbanDevelopment, Ministry of PanchayatiRaj, Directorates of Local Fund AuditDepartments, Directorates of majorLocal Bodies and other eminentprofessionals. As the committeecomprises of professional bodiesassociated with local bodies, it is

Accounting Issues


Table-I

CASH BASIS ACCRUAL BASIS Revenues are recorded when they received, which may be before or after they are earned.

Revenues are recorded when they are earned, which may be before or after they are recorded

Expenses are recorded when they are paid, which may before or after they are incurred

Expenses are recorded when they are incurred, which may be before or after they are paid.

Financial statements reflect revenues and expenses based on when transactions were entered rather than when revenues were earned or expenses incurred

Financial statements match revenues to the expenses incurred in earning them, and more accurately reflect the results of operations.

No receivables are recorded A receivable is recorded when payment is not received at the point of sale.

beyond-doubt that the road map for thispractice can be so perfect and effectivefor all governmental departmentsincluding local bodies.

Principles of Accrual Accounting

As the base of accounting shiftsfrom cash to accrual, the nature andtiming of recognition undergoes afundamental change. Transactions arerecorded at the time when economicvalue is created, exchanged ,transformed, transferred or impairedirrespective of whether cash is actuallyexchanged or not. Hence, the generalAccrual Accounting principles that arefollowed by the governments are:

(1) Revenues are recognized whenthere is an increase in futureeconomic benefit related to increasein an asset or a decrease in liability.Revenue received but not earned inthe reporting period will be treatedas current liability. Revenue earnedand not received will be treated ascurrent asset

Ex: Tax assessed but not received:license fee/ royalty due but not received.

(2) Expenses are recognized when thereis a decrease in future economicbenefit related to a decrease in anasset or an increase in liability.Expenses are recognized in theperiod in which they relateirrespective of whether or not theyare paid. Expenses incurred and notpaid would be accounted as CurrentLiabilities. An estimate of

receivables not collectible bygovernment would be charged offas an expense. Depreciation isrecognized in the reporting periodas an expense. Impairment of assetsis accounted for as an expense.

(3) Assets are recognized in accountswhen future economic benefits orservice potential flows to the entityon account of past events. Bothcurrent and long term assets arerecognized. At present, capitalexpenditure is consolidated into asingle cumulative figure in thefinance Accounts and write offscharged to this amount. This doesnot give information about the kindsof assets not charged fordepreciation. Hence, in accrualaccounting, assets may have to beclassified into categories andconsumption of fixed assets in termsof depreciation be accounted for asper accounting policies. Inventoriesare recognized at cost or netrealizable value whichever is lower.Receivables are accounted for alongwith provision for doubtfulreceivables.

(4) Liabilities are recognized when thereis a present obligation from the pastevents, which could result inoutflow of economic resources. Atpresent only long term liabilities arerecognized in government. Inaccrual system, both long termliabilities and current liabilities may

have to be recognized. Hence, theexisting defined benefit pensionliability may be shown on actualvaluation basis.

(For More details of this convergenceof cash base to cash and accrual basein government accounts see the table IIand Exhibit I & II)

Accrual Accounting and Government

There is a strong case for ABA ingovernments in India. Accrualaccounting is expected to result inimproved financial discipline, decisionmaking and other key advantages ingovernmental activities, they are:

(a) Impact on the asset liability positionof the government

(b) Future sustainability of theprogrammes

(c) Estimation of Future fundingrequirements of asset maintenanceand replacement.

(d) Plan for repayment of liabilities

(e) Management of liquidity position ofthe government

(f) More comprehensive and completeview of assets and liabilities

(g) Better information of expenses andrevenues is provided

(h) Provides a financial estimate of lossof revenue on account of failure

of administration

(i) Full cost of goods and services isavailable for appropriate pricingdecisions

Accounting Issues


Existing Cash basis GPFS Possible Accrual basis GPFS Statement Information Focus Statement Information Focus Appropriation Accounts

Compliance reporting on legislative appropriations & grants

Statement of Operating performance

Income and Expenditure using matching concept and the operating surplus or deficit

Finance Accounts Statement of functional head distribution of government receipts & disburments during the year, debt and other obligations at the end of the year, Financial Assets and guarantees.

Statement of operating position Statement of Sources and uses of cash

Balance sheet of Government indicating all assets and liabilities. A cash flow statement with either inbuilt structure to include appropriation accounts for budget compliance requirements or a separate statement to supplement.

Table-IIReplacement of GPFS Cash to GPFS Accrual

(j) Comparison of cost at whichservices are provided bygovernment in different reportingperiods and regions is possible

(k) Both implicit and explicit subsidiescan be captured

(l) Intraregional equity issues can bebetter handled

(m) The financial statements woulddepict the burden of the presentgovernment passes on to the futuregovernments.

Hence, to derive the above benefits,the governments are ought to havemore from traditional rules as laid downin various official pronouncements toprinciple based systems. So GASABhas been vested with the responsibilityof development of accountingstandards for governments through anotification. GASAB needs to issueAccrual Basis Accounting StandardsGASAB has embarked on issue ofAccounting Standards on accrual basisfor facilitating pilot studies at

Government of India and StateGovernments. These Standards areissued as "Indian government FinancialReporting Standards "(IGFRS) and areharmonized with IPSAS.

GASAB has drawn up a detailedroadmap involving various steps to betaken during the course of migration.Taking into account the variousexperiences and road map has visualizeda time frame of 10-12 years. GASAB hasalso prepared an operational frame workindicating the stages in which migrationmay take place. It also indicates thedeviation from the commercial systemof accounting on account of specificrequirements of government activities.

Consequently, discussion onAccrual Accounting has been goingfrom a long time by various experts andcommittees. It has gained importanceand strengthened with the governmentaccepting the recommendations of the12th Finance commission to migratetowards accrual accounting.

Government has entrusted the task ofdrawing up a detailed roadmap andpreparation of operational frame workto Government Accounting StandardsAdvisory Board constituted by theComptroller and Auditor General withsupport of Government of India.

As the responsibility for compilationof accounts of Government of Indiarests with controller General ofAccounts. Even, the accounts of all theState Governments are compiled by thecomptroller and Auditor General ofIndia. Both the accounting authoritieshave embarked on pilot studies at unionand states respectively to arriveappropriate model of accrual accountingin India.

A Case Analysis of ABA

Here is a case of ABA with regardto Sahashra Agro Farms that explain thegaps and differences betweenstatements based on accrual adjustedinformation and statements based oncash accounting. This example is

Accounting Issues


developed based on the case given bytremp.tamu.edu.

Sahashra Agro Farms appears to bemoderately profitable on a cash basis.However, after adjusting the cash basisincome statement to approximate anaccrual basis income statement for thesame period, net income after taxincreased from 18000/- to 46000/-.Because the accrual adjustments, grossrevenues were greater by 25000/-(175000to 200000/-). While total expenses wereless by 19000/-(149000/- to 130000/-).However, because of the accrued anddeferred income taxes, the expenses forincome taxes is increased by 16000/-(from 8000/- to 24000/-).

After making the accrualadjustments to the income statement,cash grain farm was shown to be moreprofitable than had been portrayed bythe cash basis method of accounting.The more critical situation would occurif the accrual-adjusted net incomeshowed the business to be lessprofitable than the producer may havebeen led to believe by relying solely oncash basis income statements.

Hence, the illustration shows thatthe computing income on a cash basiscan mispresent true profitability for anaccounting period when there is a timelag between the exchange of goods andservices and the related cash receipt orcash disbursement. Such distortion canbe substantially reduced by consideringthe net changes in certain balance sheetaccounts. (See table III to understandthe practicality of Accrual BasisAccounting with a comparison of cashbasis one through the numerical dataof case problem.)

Conclusion

It is beyond doubt that ABASystem will help in ascertaining theright position of assets & liabilities ofgovernment, which is not possible undercurrent system. This would help inbetter fund management and evaluationof performance of various departments

Table-IIIIncome Statements: Cash Basis (Left) and Accrual -Adjusted Basis (Right)

Sahashra Agro Farms (cash basis)

Sahashra Agro Farms (Accrual basis)

Receipts Revenues Sahashra Agro Sales 150,000

Cash receipts from Sahashra Agro Sales 150,000

Government Programme Payments 25000

Change in Sahashra Agro inventory +20,000

Government programme Payments 25000

Change in accounts receivables +5000

Total Cash Receipts 175000

Gross Revenues 200,000

Expenses Expenses Cash Operating Expenses 85000

Cash Disbursement For Operating Expenses 85000

Interest Paid 37000 Change in accounts Payable -12000

Total Cash Expenses 122000

Change in Prepaid Expenses +1000

Depreciation 27000 Change in unused Supplies -2000

Change in investments In growing crops -4000

Depreciation 27000 Total Expenses 149000 Total Operating

Expenses 95000 Net farm income from operations (cash Basis) 26000

Interest paid 37000

Gain/loss on sale of farm Capital assets 0

Change in accrued Interest -2000

Net income before tax (cash basis) 26000

Accrual Interest Expense 35000

Income taxes & S.S Taxes paid 80000

Total Expenses 130000

Net Farm Income After Tax 18000

Net farm income from operations 70000 Gain/loss on sale of farm Capital assets 0 Net Farm Income 70000 Income taxes & S.S Taxes paid 8000 Change in income taxes & S.S taxes payable +3000 Changes in current portion of Deferred taxes +13000 Accrual income Taxes & S.S Taxes 24000

Note: Because the IRS requires capital assets (Mach, equipment, buildings etc.,) to be depreciated over the useful life of the assets, the common practice, even with cash basis accounting, is to record a depreciation charge.

Net Farm IncomeAfter Tax (Accrual basis) 46000

Source: http://trmep.tamu.edu

Accounting Issues


effectively. Further, accrual system ofaccounting can help in estimating costof services more appropriately thatcould form a crucial input for managerialdecision making for the well-being ofIndia.

With regard to ABA the governmentshould ensure the output and outcomeof the spending that commensurate withthe inputs and the long term fiscalsustainability and however, the adoptionof accrual system of accounting,governments are too expected to bebetter positioned in assessing theirfinancial performance and position.

Exhibit-IAdjusting Cash Basis Records to Appropriate Accrual Basis Records.

Cash Basis Adjustment to Cash Basis Equals Accrual Basis Cash receipts -Beginning Inventories

+Ending Inventories -Beginning accounts receivable +Ending accounts receivable

Gross revenue

Cash disbursements -Beginning accounts payable +Ending accounts payable -Beginning accrued expenses +Ending accrued expenses +Beginning prepaid expenses -Ending Prepaid Expenses +Beginning unused supplies ( fuel, chemical etc.,) -Ending unused supplies +Beginning investment in growing crops -Ending investment in growing crops.

Operating expenses

Depreciation expense No adjustment (note 1) Depreciation expense Cash net income (pre tax)

Accrual adjusted net income (pre tax)

Cash income taxes and social security taxes

-Beginning income taxes and S.S taxes +Ending income taxes and S.S taxes -Beginning current portion of deferred tax liability + Ending current portion of deferred tax liability( Note 2)

Accrual adjusted income taxes and S.S taxes

Cash net income ( after tax)

Accrual adjusted net income ( after tax)

Notes:

1) It doesn't provide a clear & completeview of financial position, as theinformation regarding assets andliabilities are not available for fixedassets (land, building). Informationabout capital work in progress ofdams, power plants etc., are notavailable. It doesn't provide fullinformation on current assets. eg:accrued income like outstandingroyalty, fees, service charges.

Full Information not available aboutgovernment liabilities (Pensionarycommitments, interest due, bills

payable etc.,). Unit cost and totalcost of services provided bygovernment departments like health,water supply, and transportationcan't be ascertained. It neglects thetransactions by not recordingexpenditure already incurred butpayment not made. eg: suppliesMade, salary, telephone charges.And it provides a wrong view ofincome received, as advance taxreceipts are recognized as income.Matching principle was not givendue weightage. No disclosures aremade about accounting principles

Accounting Issues


Exhibit-IIA broad frame work for transition to accrual accounting

Stages Expenses Revenues Assets Liabilities Contingent Liabilities

Current Stage Exp-current & capital

Receipts Financial Assets

Stock of Public debt and Borrowings on public account

Guarantees

Stage-I Current Expense on accrual basis and capital expenditure on cash basis

Receipts Financial Assets

Stock of public debt and borrowings on public account + Payables

Guarantees

Stage-II Current Expense on accrual basis and capital Expenditure on cash basis (Excluding Expenditure on military Assets)

Non-Tax Revenues on accrual basis + Tax revenues on cash basis

Financial Assets + Receivables + Military Assets

Stock of Public debt and borrowings on Public Account + All other liabilities ( except superannuation benefits, compensated leaves, provisions, and social security

Guarantees

Stage-III All expense s on accrual basis + Depreciation

-do-

All Assets (excluding infrastructure, land, heritage, intangible assets)

All liabilities (except superannuation benefits, compensated leaves, provisions, and social security)

All Explicit contingent liabilities

Stage-IV All expenses on accrual basis + Depreciation +provisions

-do-

All assets including infrastructure and land (excluding heritage and intangible)

-do-

All Explicit contingent liabilities

Stage-V All Expenses All Revenues on accrual basis

All Assets All liabilities All Explicit contingent liabilities

Exhibit-III:Differences between Cash Accounting and Accrual Accounting

Cash Accounting Accrual Accounting Operational requirements Relatively simple Relatively complex Links to traditional budget and revenue systems

Relatively strong Relatively weak

Coverage Records only transactions that result in cash payments or receipts

Records estimated non-cash transactions as well

Timing Records only transactions that occur within the accounting period

Records the estimated future effects of current transactions and policy changes

Audit and Control Relatively simple Relatively demanding

on which basis financial statements

are prepared. It provides space for

fiscal opportunism.

2) It is possible to have an income tax

and social security tax receivable

(Refund due) or a deferred tax asset.In these instances the signs (+/-) of

the Period would be reversed when

making the accrual adjustments.

3) Because depreciation is non cash

expenditure, technically it would not

be reflected on a cash basis incomestatement. Instead, the statement

would show the cash payments for

property, facilities and equipmentrather than allocating the cost of the

asset over its useful life. However,

because the internal revenue coderequires capital assets to be

depreciated even for cash basis tax

payers, the common practice is torecord depreciation expense for

both cash basis and accrual basis

income accounting.

Accounting Issues


Throughput Accounting -A Tool to ManageInventory During RecessionAtul Shiva*Monica Sethi*Introduction:

Ever since the development ofCost Accounting in 1890, Labourcost has been the most volatile,

significant and vulnerable cost in theproduct cost. The labour cost dependsprimarily on how efficiently managersused labour in an organization. EliyahuM Goldratt argues that under currentconditions labour efficiencies leads todecisions that harm rather than helporganizations. Throughput accounting,therefore, removes standard costaccountings reliance on efficiencies ingeneral and labour efficiency inparticular from management practice.Many cost and financial accountantsagree with Goldratt's critique, but theyhave not agreed on a replacement oftheir own and there is enormous inertiain the installed base of people trainedto work with existing practices.

The Concept of ThroughputAccounting: Throughput Accountingis an alternative to cost accountingproposed by Eliyahu M Goldratt. It isnot based on standard costing orActivity Based Costing. ThroughputAccounting is not costing and it doesnot allocate costs to product orservices. It can be viewed as businessintelligence for profit maximization.Throughput Accounting is themanagement accounting system basedon the theory of constraints, which waspopularized by Goldratt's businessnovel - 'The Goal'. According to him theconcept of allocating costs to products

*Senior Lecturers in Commerce, Departmentof Commerce and Management,Sri Aurobindo College of Commerce andManagement, Ludhiana, Punjab.

is wrong and leads to erroneousdecisions. Many, especially by ABCadvocates, have criticized Goldratt'sviewpoint. It seems that ABC advocatesare now partially agreeing with Goldratt,as it is better for sort term decision,however, for long tern cost must still beallocated to products.

Measures of ThroughputAccounting: Goldratt's alternativebegins with the idea that eachorganization has a goal and that betterdecisions increase its value.Throughput Accounting uses threemeasures of Income and expense:(A)Throughput (T) is the rate at which

the system produces 'goal units'.When the goal units are money,throughput is sales revenue less thecost of raw materials (T = S-RM).Throughput can arise only whenthere is a sale. Idle stock does notcount. Throughput is similar tocontribution of Marginal Costing i.e.Sales - Variable Costs.

(B) Investment (I) is the money tied upin the system. This is moneyassociated with Inventory,machinery, buildings and otherassets and liabilities. Theory ofconstraints given by Goldrattrecommends inventory be valuedstrictly on totally variable costassociated with creating theinventory, not with additional costallocations from overhead.

(C) Operating expense (OE) is themoney the system spends ingenerating 'goal units'. For physicalproducts, OE is all expenses exceptthe cost of the raw materials. OEincludes maintenance, utilities, rent,taxes etc.

All the organizations whereThroughput Accounting is utilized musttry to understand these abovementioned facts as how to increase theirthroughput by reducing investment andoperating expenses. ThroughputAccounting is an important develop-ment in modern accounting that allowsmanagers to understand thecontribution of constrained resourcesto the overall profitability of theenterprise.Inventory Cost Management viaThroughput Accounting:

Besides managing capacity levels,managers in companies and industrieswith high fixed costs care aboutdecisions that affect their operatingincome numbers i.e1. Top management uses operating

income numbers to evaluate theperformance of managers. Operatingincome also affects a company'sstock price. Therefore, any stockbased compensation such as stockoptions that managers receivewould also be affected.

2. Planning decisions typically includeanalysis of how the alternativesunder considerations would affectfuture reported income.

3. Planning decisions typically includeanalysis of how h alternatives underconsiderations would affectreported income.

4. Reported income is often used toevaluate the performance ofmanagers.Inventory costing choices relate to

which manufacturing costs are treatedas inventoriable costs. There are threetypes of Inventory-Costing:1. Absorption Costing: It is a method

of inventory costing in which allvariable manufacturing costs and allfixed manufacturing costs areincluded as inventoriable costs. Inother words, inventory absorbs allmanufacturing costs.

2. Variable Costing: It is a method ofinventory costing in which all-variable manufacturing costs areincluded as inventoriable costs. Allfixed manufacturing costs areexcluded from inventoriable costs.

Costing Matters


The fixed manufacturing costs aretreated as costs of the period inwhich they are incurred.

3. Throughput Costing: It is also calledas super-variable costing whichmatches only for direct materialsfocusing on throughputcontribution. The concept ofThroughput Costing can effectivelyutilized to manage the Inventorycost Management system. Theadvocates of throughput costingmaintain that, in the short run,manufacturing costs other thandirect materials are relatively fixed.Some managers maintain that evenvariable costing promotes anexcessive amount of costs beinginventoried since it is only the DirectMaterial Cost that is truly variable.All the other costs are costs of theperiod in which they are incurred.In particular, variable directmanufacturing labour costs andvariable indirect manufacturingcosts are regarded as period costsand deducted as expenses of theperiod.The concept of Throughput costing

can be explained with the help of anexample mentioned as below viz a vizabsorption costing and variable costing.

The calculations clearly illustratewhy managers whose performance ismeasured by reported income and thechoice of method between absorptioncosting, variable costing andthroughput costing. If the unit level ofinventory increases during anaccounting period, less operatingincome will be reported under variablecosting and throughput costing thanabsorption costing. Conversely, if theinventory level decreases, moreoperating income will be reported undervariable costing and throughputcosting than absorption costing.

The overall evaluation ofComparative Income effects ofAbsorption costing, Variable costingand Throughput costing is as below:

After evaluating ThroughputAccounting in comparison of traditionalcost accounting, the followingobservations can be derived on the

basis of decision-making criteria offinance managers1. Throughput Accounting focuses

only on overall cost reduction of thecompany while cost accountingtakes into account the decisionrelating to cost reduction per unitof the company.

2. Throughput Accounting tries tomaximize only throughput of theconcern while cost accounting doesnot tackle into account the impacton throughput.

3. In Cost Accounting any increaseinefficiency is acceptable whereasin Throughput Accounting onlyincreased in efficiencies thatincrease throughput or that reducesoverall cost are acceptable.

Criticism to Throughput Accounting:1. The major limitation of Throughput

Accounting is that it is primarilyoriented towards the achievementof short-term objectives of theorganization. Throughput accoun-ting focuses only on fixed supplyof resources and maximizethroughput. The theory ignores allother aspects relating to the productmix in future except materials. Itconcentrates on maximizingthroughput, inventory managementand the impact on operatingexpenses only.

2. Another shortcoming ofThroughput Accounting is that the

2006 2007 2008Beginning Inventory 0 200 50Production 800 500 1000Sales 600 650 750Ending Inventory 200 50 300

Selling Price 1000The variable manufacturing cost per unit:Direct material cost 110Direct manufacturing labour cost 40Indirect manufacturing cost 50Total variable manufacturing cost per unit 200Variable marketing cost per unit sold (all indirect) 190Fixed manufacturing costs (all indirect) 120000Fixed marketing costs (all indirect) 108000

operating expenses of the companyare unrelated to decisions madeabout the product sold andcustomers served. The approach ofThroughput Accounting is that onlythroughput can be traced to theproducts. There must not be anyattempt made to trace operatingexpenses to the products, whereasoperating expenses represents howmuch the company is paying tohave its resources available togenerate throughput. Therefore thecompany must track its capacitylevels, constraints and idleness soas to generate enough flexibility toincrease the production volume andproduct variety to increase itsthroughput without increasingoperating expenses.

3. The application of ThroughputAccounting is limited for internalreporting systems of the companyonly. Since Absorption costing isutilized for external reportingsystems and is famous amongpracticing corporate financeprofessionals supported by GAAPand for tax considerations, therebymaking very less scope forThroughput Accounting in use.

Conclusion:The Theory of constraints as

described by Throughput Accountingis based on its basic assumption thatwhatever period is being analyzed; thecompany will always have at least one

Costing Matters


SITUATION - III: THROUGHPUT COSTING 2006 2007 2008

Revenues: 600000 650000 750000Rs 1000*600; 650; 750 unitsLess: Direct Material COGSOpening Stock NIL 22000 5500Direct Material 88000 55000 110000Less: Closing Stock (22000) (5500) (33000)Total Direct Material COGS 66000 71500 82500Throughput Contribution 534000 578500 667500Less: Other CostsManufacturing Costs 192000 165000 210000(Fixed Cost + Variable Cost * Units Produced)

(120000 + 90*800; 500; 1000 units)Marketing Costs 222000 231500 250500(Fixed Cost + Variable Cost * Units Produced)(108000 + 190*600; 650; 750 units)Total Other Costs 414000 396500 460500Operating Income 120000 182000 207000

The summary of the operating income differences during 2006-2008 is as below:

2006 2007 2008Absorption Costing Operating Income 168000 146000 267000Variable Costing Operating Income 138000 168500 229500Throughput Costing Operating Income 120000 182000 207000

Major Findings Absorption costing

Variable Costing

Throughput Costing

1. Are fixed manufacturing costs inventoried? Yes No No 2. Is there a production – volume variance? Yes No No 3.Are classifications between variable and fixed costs routinely done?

Infrequently Yes Yes

4. How do changes in unit inventory levels affect operating income? Production = Sales Production > Sales Production < Sales

Equal Higher Lower

Equal

Lower Higher

Equal Lower Higher

5. What are the effects on Cost-Volume-Profit-Analysis?

Driven by (a)unit level of sales (b)unit level of production (c)chosen denominator level

Driven by unit level of sales

Driven by unit level of spending for direct materials costs as product costs.

6. Application of GAAP Yes No No 7. External Reporting Purposes Applied Not

utilized Not utilized

constraint. The basic differencebetween Activity Based Costing andTheory of Constraint is that in shortterm a company will have fewconstraints, however in long term it willnot. Activity Based Costing assumesthat in long run all of company'sresources are equally important.Activity Based Costing has cost driversand tries to increase local efficiencieseverywhere. In ABC a chains long-termresistance can be accomplished bystrengthening any link. However, theview of Theory of Constraints is thatchain's resistance is determined by itsweakest link. Therefore Theory ofConstraints is recommended for short-term decisions and activity basedcosting for long-term decisions. Ifcorporate finance professionals agreewith a view that a company is a system,and that a system will have very fewconstraints, theory should use onlythroughput accounting. f they do notthink that the company will have fewconstraints in the long run if theybelieve high level efficiencieseverywhere will lead to good overallperformance, Activity based costingshould be used for long term decisions.

LowerHigher

Costing Matters


Introduction

M aintenance means keeping ofPlant & Machinery as well asequipments at a standard

operating condition involving inter-alia,operations of repairing, adjusting andreplacing of spare parts, tools,accessory or attachment or componentof sub-assemblies, assemblies etc; etc;“Spare” means a part or sub-assemblyor assembly for substitution, i.e. readyto replace an identical similar part orsub-assembly or assembly, if it becomesfaulty or worn-out. “Component”means one of the parts or sub-assemblyor assembly, of which a manufacturedproduct is made up and into which itmay be resolved, and includes anaccessory (or attachment). “Accessory”(or attachment) means a part, sub-assembly or assembly that contributesto the effectiveness of a piece ofequipment, without changing its basicoperation / functions. “Part” means anelement of sub- assembly or assemblynot normally useful by itself and notamenable to further dis-assembly formaintenance purposes. It can be acomponent spare or accessorydepending upon the nature of itsusefulness/requirement. “Consumable”means any item which participates or isrequired in a manufacturing process butdoes not form part of the end product.

Failure of spares/parts is of a highlyprobabilistic nature and it may requirehigh capital investment.

The industrial/business units haveto optimize spares inventory value and

Maintenance SparesManagement : CostReduction ApproachB. C. Patel*

also meet the normal requirements atshortest notice. The aim should be toachieve surety in availability of exactmaterials/spares when required andsimultaneously to minimize capitalblocked up in inventories.

Current Indian Scenario

Barring some industries/companiesthe spares inventory management inIndia is unscientific and many decisionsare arbitrary. There are hardly detailedrecords of plant / equipment wiseconsumption/replacement of spares interms of quantifies. For planning theinventory of spares, generally theengineers concerned arbitrarily assumecertain quantities requirements, to beprocured and stocked. This hardly takescare of the failure rates of parts of theconcerned industry in past in theprevailing conditions of respective plantand equipments. In absence ofmaintenance history cards for importantequipments, etc.; it is difficult to haverational decisions. Further, at times,most of the time of maintenance personsis spent (or wasted?) in the last minutesearch of the required spares in thestore-room at the time of stoppage/break-down, because neither themaintenance person nor the store/godown people are clear aboutspecifications of required spare-parts.Dead stock of huge quantities are , attime, kept which are supplied with themachines/equipments. In some cases,for which they were initially bought arescrapped(or not in use) or may havebecome obsolete etc ; In some othersituations there may be qualitativedeterioration of spares under storage.*FICWA

Further parts of same or identicalspecifications might have been storedunder different symbols oridentifications. In some rare casesdifferent spares may have been keptwith one code. At times stock ofessential spare parts (with more leadtime) may be very low.

Need for Approach

In the above present day scenario,the Indian Industry is faced with asituation of unduly high level of sparesinventory, thereby locking up a sizeablecapital which by better management canbe reduced and released for otherpurposes. The capital so locked up isestimated at Rs.40,000 /- million in theform of obsolete and non-movingspares. Unlike other items (rawmaterials) and consumables, spare partsquantum requires more frequent reviewand assessment. This part ofmanagement being complex, requiressophisticated decision makingtechniques. Uninterrupted industrialproduction is essential so as to enhancecompetitive strength in national andinternational markets. Carefullyregulated maintenance of PlantMachinery and other equipment/services can make a sizable contributionto the overall productivity of theindustrial entity. Abrupt shut-downsand frequent break-downs of plants/equipments for repairs are alwaysexpensive propositions in terms of lossof marketable production / services. Itis therefore, necessary to takecalculated steps so as to obviate suchunpleasant situations. Sound sparesmanagement as a part of repairs andmaintenance function would go a longway in increasing productivity.

Analysis & Tools

(a) Major Steps:- Steps involved inbetter spare inventory management:

i) Detailed realistic classification /condification;

ii) Minimum/maximum quantities to bestocked under various situations;

Recent developments in finance


iii) Procurement procedure consideringlead time;

iv) Inspection, preservation storage,etc; of spares;

v) Norms for insurance spares, vitalessential spares;

vi) Periodical review of sparesconsumption & segregation ofworn-out, replaced & obsoletes;

vii) Role of N.D.T. methods; applicationof computers; micro-processors,Online condition monitoring etc;

viii)Manufacture of spares internally,utilizing spare capacity of ownrepairs/workshop, reconditioningand reclamation of used/ replacedspares, if feasible.

(b) Classification:- Following basismay be used to grade spares forplant/manufacturing units :

In factories having multimanufacturing unite/departments aparticular plant forms the mostsignificant stage from the point of viewof;

a) Production Capacity;

b) Quality of Product;

c) Production Cycle Time;

d) Cost of the machineries installed, etc ;

Other factors can be determinedsuitably. The unit possessing maximumweightage becomes the most importantunit. Other units are classified in thedescending order.

The equipment can be classified intoABC groups on point ranking methodof following factors:

a) Capital Investment;

b) Useful Service Life ;

c) Capacity utilization;

d) Quality standards & accuracy/tolerance desired ;

e) Repair Expenses;

f) Cost of down times ;

g) Safety consideration;

From the overall productionoperation point of view these factorsshould be given appropriate weightageand different degrees of respectivefactors may be designed, Equipmentmay be grouped into ABC spare part ofequipments falling in "A" categoryshould have major consideration whiledeciding stock levels.

Vital, essential and desirable spareparts; spare parts of machines shouldbe classified in terms of criticality of thepart. Vital parts are those which mustbe available when needed. Here downtime costs are comparatively higher incase of failure of this part e.g. crank shaftof a reciprocating compressor. Essentialparts are those needed in time but withina reasonable quantum of delay, as theirprocurement (& delay) will affectseriously; e.g. piston rings. Desirablecategory includes those which are notimmediately required and/or items whichcan be substituted ; e.g. oil seals.

Difficulty in procuring the parts :

Scarce items are those which requirevery long lead time for procurement.Imported items & items requiringfabrication as per specifications fall inthis category. Difficult items are thosewhich require 2 to 3 months forprocurement. All indigenous itemswhich are not available easily ex-stockand/or to be obtained from equipmentmanufacturers fall in this category-easyitems are those which are availablereadily ex-stock.

(c) Quantitative Analysis:- To decidethe quantity of each spare part to bestocked broadly the items are dividedinto two categories on the basis of rateof consumption ;

(A)Fast moving items that are commonto a number of machines, which areconsumed almost regularly. Bearing;oil seals, v-belts, washers, bolts,pins etc; fall in this category;

(B) Slow moving items and items thatare special to a machine (insurancespares). The consumption of these

items, in absence of reliable failurerate, records is difficult to predicts.The quantity to be stocked for thoseitems may be based upon.

(C) i) Industry-wise and past experience.

i i )Manu fac tu re rs / supp l i e rsrecommendations and

iii) Criticality of the spare part(s); (d)Procurement / Replenishment:- ForFast Moving Spare Parts, there canbe

(A)Fixed period review : Physicalbalances of items in store andconsumption are reviewed and ifnecessary revised at regularintervals, usually once in a quarterand the quantities consumed isreplaced;

(B) Fixed quantities review : Re-orderlevels are established for some ofthe fast moving items. As soon asthe item reaches the order level thequantity equivalent of economicorder quantity is ordered. The E.O.Qcan be decided, based on followingfactors:

i) Inventory carrying cost;

ii) Ordering Cost:

iii) Size of the packing available;

iv) Quantity discounts;

Re-order level = Safety stock +-consumption during the lead time;Safety Stock = (0.5 to 1.5) times leadtime consumption. The followingformula may be used to arrive atapproximate quantity of E.O.Q. whichcan be modified considering (iii) & (iv)

E.O.Q. = 2 : Ö A.S. where i P

A = Annual Consumption Quantity

S = Cost of Placing/Processing an order

i = Cost of carrying unit inventory valuemade up of cost of interest, insurancehandling, recording, obsolescence,deterioration, space etc;

p = Price of one unit.

The above formula can be simplifiedfor practical application as under :-



E.O.Q. = K Ö A Where K = 2 Ö S P i

For an organization over a period oftime S and i should remain constant.

Control of slow-moving items orspecial spare parts :-

(a) Direct issue replacement : Every timean item is used a fresh item ispurchased. The number of item tobe stocked will depend upon thecriticality of the item and the failurerate determined from themaintenance records.

(b) Project items or major overhaulpurchases. These are the itemsrequired for minor additions in theplant or major overhauls ofequipments. Their detailedrequirements are estimated andexact quantities are ordered, forthese works only.

We may have to depend on :

(a) Foreign suppliers for sophisticatedand imported machinery;

(b) Indigenous manufacturers ofmachinery who at times may hotcompletely cooperate for supply ofrequired spares.

(c) Indigenous manufacturers of spareparts who may not be fully equippedor expertised. Following guidelinesmay help in simplifying theprocedure :

i) Whenever the necessity of a spare-part arises, first finalize the completespecifications. At this stage anynecessary modifications thoughtof, for better performance should beindicated in the drawing. At thisstage metallurgical details or atleast the properties required shouldbe mentioned,

ii) Before importing spares, allexploitation of import substitutionshould be done.

iii) Small, tiny engineering/workshopUnits may not be properly equippedfor necessary testing. Here, thepurchaser has to make use of this

capacity of influence to help themanufacturers in getting the needfultesting done, iv) Education themanufacturers regarding theavailability of specific raw materials,important testing & other facilities.

v) Improvement of Spare Parts shouldbe a continuous profess. Each timea Spare Parts is ordered, all theearlier experiences should be takeninto consideration,

(e) Control of consumption:

Norms of specific consumption forhigh value input should be fixed andenforced, For this purpose up-to-daterecord of failure rates and associatedreasons for failure of all critical parts isa must.

All these should aim at preventionof failures and extension of life periodof parts;

As the size and age of the industrygrows accumulation of scrap obsoleteand surplus spares assume seriousproportions, following items needdisposal:

i) Used and worn out tools; etc

ii) Equipment and Components thathave outlived their useful life (DeadWood),

iii) Stock of wrong spares that mighthave been accumulated, due tovarious reasons.

iv) Obsolete items of spares and stores;

v) Spares procured much in excess ofrequirements etc;

No useful purpose can be servedby keeping and preserving these thingsas they occupy valuable space and alot of money is blocked up in preservingand keeping them in safe custody andkeeping of records. This needs review:It is suggested to have periodicalexamination (and inter-actions withpersons concerned) of all and such non-moving, idle, slow-moving spares andclassify them into say :

i) Spares of definite use (SHALL USE )ii) Spares of probable use (MAY USE)

iii) Spares of no. use.

After this classification, appropriateaction can be initiated to keep items ofdefinite use category and findalternative uses or dispose off theprobable use and no use categoryspares.

(f) Disposal

"Disposal Committee" may beformed to decide the disposal actions.

This committee may consist of thefollowing members:

i) Maintenance in-charges;

ii) Stores In-Charges;

iii) Accounts Executive;

iv) Senior Managerial Person;

v) Coordinator.

A time-bound review meeting andreport may go a long way in the rightdirection, of control of spares.Reclamation :

Reclamation is much cheater thanmanufacture of new items forreplacement. In addition to thetraditional Indian skills in reclamation,latest known technologies available are:

i) Metallising;

ii) Hard facing;

iii) Metalock Process;

iv) Thermit Welding;

v) Eutectic Welding; etc;

With the availability of reclamationfacilities at hand, not only the demandfor more spares and components comesdown but also the impact of "STOCKOUT" and "DOWN TIME" getsminimized. Conclusion :

Above views & suggestions needto be interacted with concerned &related functional persons for it'simplementation. Repairs and mainte-nance costs are bound to be reducedover a longer period: more specifically,maintenance spares would be availablewith least possible "down" time,resulting in increased productivity andcost reduction.q



Two separate sets of Accounting Standards u/s Section 211(3c) of the Companies Act agreed upon by the core group forconvergence of Indian Accounting Standards with IFRS

FOR BANKING AND INSURANCE COMPANIES THERE WILL BE SEPARATE ROADMAP

The Core Group, constituted by the Ministry of Corporate Affairs for convergence of Indian Accounting Standards withInternational Financial Reporting Standards (IFRS) from April, 2011, that held its meeting on 11th January 2010 agreed thatin view of the roadmap for achieving convergence, there will be two separate sets of Accounting Standards u/s Section211(3C) of the Companies Act, 1956.

First set would comprise of the Indian Accounting Standards which are converged with the IFRSs which shall beapplicable to the specified class of companies. The second set would comprise of the existing Indian Accounting Standardsand would be applicable to other companies, including Small and Medium Companies (SMCs).

The first set of Accounting Standards (i.e. converged accounting standards) will be applied to specified class of companiesin phases:

(a) Phase-I:- The following categories of companies will convert their opening balance sheets as at 1st April, 2011, if thefinancial year commences on or after 1st April, 2011 in compliance with the notified accounting standards which areconvergent with IFRS. These companies are:-

a. Companies which are part of NSE - Nifty 50

b. Companies which are part of BSE - Sensex 30

c. Companies whose shares or other securities are listed on stock exchanges outside India

d. Companies, whether listed or not, which have a net worth in excess of Rs.1,000 crores.

(b) Phase-II :- The companies, whether listed or not, having a net worth exceeding Rs. 500 crores but not exceeding Rs. 1,000crores will convert their opening balance sheet as at 1st April, 2013, if the financial year commences on or after 1st April,2013 in compliance with the notified accounting standards which are convergent with IFRS.

(c) Phase-III :- Listed companies which have a net worth of Rs. 500 crores or less will convert their opening balance sheet asat 1st April, 2014, if the financial year commences on or after 1st April, 2014, whichever is later, in compliance with thenotified accounting standards which are convergent with IFRS.

When the accounting year ends on a date other than 31st March, the conversion of the opening Balance Sheet will bemade in relation to the first Balance Sheet which is made on a date after 31st March.

Companies which fall in the following categories will not be required to follow the notified accounting standards whichare converged with the IFRS (though they may voluntarily opt to do so) but need to follow only the notified accountingstandards which are not converged with the IFRS. These companies are: -

(a) Non-listed companies which have a net worth of Rs. 500 crores or less and whose shares or other securities are not listedon Stock Exchanges outside India.

(b) Small and Medium Companies (SMCs).

Separate roadmap for banking and insurance companies will be submitted by the Sub-Group I in consultation with theconcerned regulators by 28th February, 2010.

The draft of the Companies (Amendment) Bill, proposing for changes to the Companies Act, 1956 will be prepared byFebruary, 2010 incorporating the recommendation of Sub-Group 1 Report.

Revised Schedule VI to the Companies Act, 1956 according to the converged Accounting Standards has been submittedby the ICAI to NACAS which, after review, will submit to the Ministry by 31st January, 2010. Amendments to Schedule XIVwill also be made in a time bound manner.

In respect of the converged Accounting Standards, the Chairman of the Accounting Standards Board of ICAI will submitthe converged version of Accounting Standards to NACAS from time to time for recommendations and onward submissionto Ministry. However, convergence of all the accounting standards will be completed by ICAI by 31st March, 2010 andNACAS will submit its recommendations to the Ministry by 30th April 2010.


51st NATIONAL COST CONVENTIONEASTERN INDIA REGIONAL COUNCIL

The Institute of Cost and Works Accountants of India

at FORTUNE PARK PANCHWATI, KOLKATAKona Expressway, Santragachi, Howrah - 711 403, W.B.

Phone : 91-33-39884444On 23rd, 24th & 25th April, 2010

TIME 23 rd APRIL FRIDAY 24 th APRIL SATURDAY 25 th APRIL SUNDAY

(Set up under an Act of Parliament in the year1944-founder member of IFAC, CAPA & SAFA)


SPONSORSHIP OPPORTUNITIES

Main Sponsorship:Rs. 15,00,000/-

F The company will be allowed to send 20 (Twenty)numbers of delegates at free of cost.

F As the title sponsor and partner of the conference inassociation with EIRC ICWAI Kolkata, your name willfigure prominently in all the publicity and mediacommunication undertaken by EIRC ICWAI Kolkata.

F The company will be allowed to set up promotionalstall(s) in the campus for the duration of the conferenceand would have the option of placing suitablecomplimentary inserts in the welcome kit we will give tothe speakers and participants of the seminar conference.

F All the stationery used in communication and invitationwill contain your company logo along with that of EIRCICWAI Kolkata.

F The welcome banner at the main entrance of the institutewill carry the name of your company as the corporatepartners along with EIRC ICWAI Kolkata.

F A co-branded banner with EIRC ICWAI Kolkata will beused as the backdrop for the center-stage during theconference.

F Six monthly insertion of your company advertisementin the monthly journal published by EIRC ICWAIKolkata and one back cover insertion in souvenir.

Lunch / Convention Dinner Sponsorship (Per Session)Rs. 6,00,000/-

F The company will be allowed to send 10 (Ten) numbersof delegates at free of cost.

F A corporate lunch is planned for speakers, delegates,professionals, faculty and Students after the conference.

F Backdrop banners (3 in no) will be put up at the location.

F The event will be mentioned as Corporate lunch hostedby your company in the Program schedule.

F Two insertion in the EIRC NEWS monthly journalpublished by EIRC OF ICWAI and one inside back coverinsertion in the souvenir.

Memento SponsorshipRs. 5,00,000/-

F The company will be allowed to send 8 (Eight) numbersof delegates at free of cost.

F Banner (1 In No.) will be put up in the Convention Venue.

F One full page colour insertion in the Souvenir.

Technical PaperRs. 2,00,000/-F The company will be allowed to send 5 (Five) numbers

of delegates at free of cost.F Banner (1 in No.) will be put up in the Convention Venue.F One Full page (Black & White) insertion on the Souvenir.Conference KitRs. 2,00,000/-F The company will be allowed to send 5 (Five) numbers

of delegates at free of cost.F Banner (1 in No.) will be put up in the Convention Venue.F One Full page (Black & White) insertion on the Souvenir.F Name of the advertiser will be displayed in the Kit.

High TeaRs. 1,00,000/-F The company will be allowed to send 3 (Three) numbers

of delegates at free of cost.F Banner (1 in No.) will be put up in the Convention Venue.

TeaRs. 50,000/-F The company will be allowed to send 2 (Two) numbers

of delegates at free of cost.

Special StationaryRs. 35,000/-F The company will be allowed to send 1 (One) number of

delegate at free of cost.CONVENTION COMMITTEE

Patron-in-Chief : Sri. G. N Venkatraman - President of ICWAIPatrons :Sri B. M. Sharma - Vice - President of ICWAI

Sri Kunal BanerjeeSri Somnath MukherjeeDr. Sanjiban BandyopadhyayaSri Suresh Mohanty

Chairman :Sri Manas Kr. ThakurJt. Secretary : Sri A D Wadhwa & Sri Pallab BhattacharyaTreasurer : Sri Kali Kinkar SarkarMembers :Sri Sanjay Gupta - Chairman - NIRC of ICWAI

Sri Manubhai K. Desai-Chairman-WIRC of ICWAISri AVNS Nageswara-Chairman-SIRC of ICWAI

ADVISORY COMMITTEE

1. Sri. Jaytilak Biswas 10. Sri. V. S. Datey2. Sri. Chandan Chowdhury 11.Sri. Srinivash Singh3. Sri. P G Nandi 12. Sri. Ashis Bhattacharya4. Sri. P S Bhattacharya 13. Sri. D V Joshi5. Sri. Harijibon Banerjee 14. Sri. D C Bajaj6. Sri. Soilesh Bhattacharya 15. Dr. Ravi Misra7. Sri. Ashim Mukherjee 16. Sri. Dr. Subhash Ch. Das8. Sri. R S Sharma 17. Sri. I N Chatterjee9. Sri. Rajiv Mehrotra 18. Sri. Pravakar Mohanty


TECHNICAL COMMITTEE RECEPTION COMMITTEE

Chairman :Sri. A D Wadhwa Chairman :Ms. TanmayaS Pradhan

Members : Sri. Ashish Members : Sri. K K SarkarBhattacharyaSri. Sudipti BanerjeeSri. Ashish ChattapadhyayaSri. P K SikdarSri. Mrityunjay Acharjee

DELEGATE COMMITTEE SOUVENIR COMMITTEE

Chairman :Sri. Debashis Saha Chairman :Sri. K K SarkarMembers :Sri. Saswata Members :Sri. Debashis Saha

Dasgupta

CO-ORDINATION CULTURAL COMMITTEECOMMITTEEChairman :Sri. Saswata Chairman : Sri. Pallab

Dasgupta BhattacharyaMembers : Sri. K K Sarkar Members : Sri. A D Wadhwa

CMA NATIONAL AWARD FOR EXCELLENCEIN RESOURCE MANAGEMENT 2010

AWARD COMMITTEE

Chairman : Dr. Sanjiban BandyopadhyayaMembers : Sri Somnath Mukherjee

Sri Pallab BhattacharyaMs. Tanmaya S Pradhan

CONTRACT FORMToMr. MANAS KR. THAKURChairman51 st National Cost ConventionEastern India Regional CouncilThe Institute of Cost and Works Accountants of India84, Harish Mukherjee RoadKolkata-700025Dear Sir,We are pleased to inform you that we are interested in: [Tick which is applicable]a) Sponsoring the programme to be held on 23rd , 24th & 25th April, 201 0 at Fortune Park Panchwati, Kolkata, Kona

Expressway, Santragachi, Howrah-711 403, West Bengal[Main Sponsorship / Lunch or Convention Dinner Sponsorship / Memento Sponsorship/ Technical Paper /Conference Kit/High Tea/Tea/Special Stationary/Display Banner]

b) Insertion of an advertisement in the souvenir [Special Page/Back Cover / Back Cover (Inside)/Front Cover (lnside)/lnside full-page (Colour/Inside full-page (Black & White / Inside half page (Black & White)/! nside Quarter Page(Black & White)]

Bank Draft/Cheque No .................................................................................................................... Dated .....................................Drawn on ............................................................................................................................................................................................Rupees ................................................................................................................................................................................................Towards advertisement/sponsorship/dalegate fees.Name of the Organization: ................................................................................................................................................................Address: .............. . ................................................................................................................................................................................................................................................................................................................................................................................................Contact no.:.........................................................................................................................................................................................E-mail id:...............................................................................................................................................................................................c) To enroll the following person(s) as delegates for the 51 st National Cost Convention. Delegate Details:1) Name:...........................................................................................................................................................................................

Designation:..................................................................................................................................... o Veg o Non-Veg2) Name:...........................................................................................................................................................................................

Designation:...................................................................................................................................... o Veg o Non-Veg3) Name:..................................................................................................................................

Designation:.......................................................................................................................................o Veg o Non-Veg[Attach more pages if no. of persons is more than three(3)]Bank Draft/Cheque should be drawn in favour of ‘51 st National Cost Convention of ICWAI’payable at Kolkata.

Signature with seal


Avenues and Revenues-A Study on the PricingStrategies of Telugu TVChannelsDr. K. V. Ramana Murthy*Dr. K.V.Achalapathi**

*Lecturer in Commerce, Vijayanagar Collegeof commerce**Professor of Commerce, OsmaniaUniversity

T he paper deals with the pricing(cost and revenue) strategies ofTelugu TV channels. The

required data are collected byadministering a structured question-naire to the media experts. Tariff cardsfrom the advertisers and the programmeschedule of Telugu TV channels are alsoused for the analysis. A linearprogramming model has beendeveloped to find the optimal mix forthe entertainment specific channels inTelugu TV sector.

Pricing strategies play an importantrole in the success of a channel. InTelugu TV stream, some channelsbelieve in in-house productions, somein external productions and somebelieve in both. The Channels have totake the major heads of expenditure intoconsideration while arriving at strategicdecisions. They have to evolve astrategy in such a way that theirRevenues are not only sufficient to meettheir expenditure, but also earnsufficient profit or surplus for the longterm purposes.

When it comes to the question offixing appropriate rates for differentprogramme slots, certain factors suchas channels rating, programme rating,tariffs fixed by the competitors, time slotallotted for the programme, ratings

given by the channels themselves andexternal agencies and so on play animportant and pivotal role.

Some of the major expenditure headsfor Telugu TV channels are

The Major Sources ofadvertisement Revenue are: Spot buy,Sponsorship, Associate sponsorship,Branding, Scrolling, Patches, Timecheck and Paid channel subscription

Spot Buy: Specially preparedcapsules of 10 seconds for varyingdurations for insertion ofadvertisements in between the half anhour slots.

All the TV channels consider halfan hour programme as one slot whichagain is divided into three parts - 24minutes for the programme, 4 minutesfor advertisements and 2 minutes topromote their programmes (promos).

The 4 minute advertising period isagain divided into 24 advertisement

Head of expenditure Proportion approximately (%) Cost of revenue 70-80 Staff remuneration 05-06 General administration 10-11 Financial charges 02-03

The Major Sources of Revenue are as follows.

Source of income Proportion approximately (%) 1. Advertisement income 55-60 2. Broadcast fee 15-20 3. Income from pay channels 2-3% 4. Cable distribution revenue 10-15 5. Programme licensing fee 1-2

slots of 10 seconds each, which in shortis called spot buy for 10 seconds.

1.3 Objectives of the study:

¡ To know about the pricing strategiesof the Telugu TV channels.

¡ To formulate a LPP model to find theoptimal mix

1.4 Methodology: The required datahas been collected through secondarysources such as Tariff cards of thechannels and websites. Statistical toolssuch as Geometric mean, co-efficient ofvariation, co- efficient of range havebeen used for analysis. A linearprogramming model has beendeveloped to suggest optimal mix forthe entertainment specific channels.

The channels covered under thestudy are ETV2, TV9, Gemini News(earlier 'TEJA NEWS'),[ News specific],Gemini Music (earlier 'Adithya Music')[Music specific], Gemini TV, Teja TV,ETV, MAA TV, Vissa TV, Zee Telugu(earlier 'Alpha Telugu'),and DD 8[Entertainment specific].

1.5 Analysis and findings of the study:The findings of study are highlightedin 1.5.1, 1.5.2, 1.5.3, 1,5.4 and 1.5.5 in thesubsequent part of the study.

1.5.1 Consolidated Statement ShowingTariff Rates:

The following summary statementshows the details pertaining to thelowest and highest tariff rates ofdifferent channels.

Marketing Matters


Table 1.a: Tariffs / Commercial Rates

SPONSORSHIP Channel Lowest Rate

(Rs.) FCT Seconds Highest

Rate (Rs.) FCT Seconds

Gemini 1,76,000 100 5,28,000 300 Gemini Music DANA DANA DANA DANA

Vissa 1,10,000 200 4,20,000 320 DD 8 8,000 120 1,00,000 90 Zee Telugu 27,000 90 54,000 90 E TV 2 36,000 90 1,26,000 90 Maa TV 12,500 50 81,000 90 TV 9 DANA DANA DANA DANA Teja DANA DANA 1,00,000 200

Table 1.b: Tariffs / Commercial Rates

Associate Sponsorship Spot Buy Channel Lowest

Rate Rs. FCT Seconds

Highest Rate Rs.

FCT Seconds

Lowest Rate Rs.

Highest Rate Rs.

Gemini DANA DANA DANA DANA 8,000 20,000 Gemini Music DANA DANA DANA DANA 400 750 Vissa 65,000 180 3,00,000 240 2,500 12,000 DD 8 DANA DANA DANA DANA 2000 15000 E TV DANA DANA DANA DANA 3000 14,500 Zee Telugu 18,000 60 36,000 60 3,000 6,000 E TV 2 24,000 60 84,000 60 4,000 14,000 Maa TV 7,500 30 36,000 40 2,500 12,000 TV 9 DANA DANA DANA DANA 3000 12,000 Teja DANA DANA DANA DANA 2,500 5,000

(Source: Tariff cards supplied by the channels)* DANA - Data not available (Here, the tariffs are fixed as per the ratings of the programmes)** Depending on the popularity of the programme, rates will be changed

The following observations emergefrom table 1 (a) and (b):

Ø Spot buy and sponsorship rates ofGemini are on the higher sidecompared to the other Telugu TVchannels. As it is a dominant forceit sets its own prices. Gemini followsmarket leader strategy.

Ø The lowest rates of sponsorshipand spot buy of DD8 are relativelylower. However, their highest ratesof sponsorship and spot buy areslightly higher than the rates offeredby Maa TV and Zee Telugu. Itappears that the pricing decision ofDD8 is centralized.

Ø Zee Telugu is trying to attract morenumber of advertisers by offering

the rates which are closer to MaaTV and relatively lesser than the toprated channels. It shows that Zee TVconsiders MAA TV as its closecompetitor.

Ø Maa TV quotes relatively lower rateswhen compared to E TV and Gemini.

Ø The tariffs quoted by ETV2 forcertain time bands are slightly higherthan TV9.

Ø The tariff rates of all channels aresubject to change and allowance rategoes up as the number ofadvertisement slots goes up.

Ø News specific channels are tryingto pool resources through timecheck, patches, scrolling etc inaddition to spot buy. The scope for

branding in news specific channelswhen compared to entertainmentchannels is relatively lower.

Ø The advertisement agencies provideinterface between the TV channels andthe sponsors for which they receivecommission at 15 percent approximately.

From the above analysis it can beobserved that every channel has its ownUnique selling proposition.

1.5.2 Revenues of Telugu TV Channels:The revenues of Telugu TV Channelsfor a period of five years are presentedhereunder:

Gemini TV and TV 9 are maintainingtheir number one position in TeluguGeneral & Telugu news respectively.Out of the old non-governmentchannels, ETV lost some share perhapsdue to over -emphasis on routine serials.Among the new channels, Maa and ZeeTelugu are the major gainers. Teja &Maa TV may pose a very toughcompetition and threat to ETV in thenear future. The cost and revenuestrategies of Telugu TV channels revealthat there is a neck to neck competitionbetween Teja & ETV for 3rd and 4thposition .Gemini occupies first positionfollowed by Maa TV. With the launchof about 15 new Telugu TV channels

Marketing Matters


Table 2: Revenues of Telugu TV Channels: An analysis

Channel %Share As on 14 June 2004 * 1

%Share As on 27 Feb 2005 * 2

%Share As on 2006 * 3

%Share As on 2006 * 4

%Share As on 2006-07 * 5

%Share As on April’07 *6

%share as on April’08 *7

Gemini 44 38.9 32 36.9 22.11 42 18.4 E TV 37 24.3 15-16 19 11.59 18.3 10.33 Maa 8 - - 9.1 8.87 12 11.52 Teja 6 19.9 11-13 21 11.64 11.4 10.29 Tv 9 1 - - 4.6 3.77 3.66 2.73 E TV 2 1 - - 3.7 2.26 2.55 1.69 Zee Telugu

- - - 4.1 3.31 7.1 5.71

(Source: Secondary from websites listed at the end of the presentation)

and expansion of cable TV programmesacross the state, the revenues of oldTelugu TV channels seem to decline in2008.

The following observations aremade from table 3:

1. The Co-efficient of range revealsthat Gemini is maintaining itsposition with low dispersion ratefollowed by Maa, ETV and Teja.Therefore the revenues of Geminiand Maa are consistent and notsubject to wild variations.

2. The average revenue as shown incolumn 3 reveals that Gemini has amajor revenue share and is in thetop position followed by ETV, Tejaand Maa TV

3. Standard deviation shows that MaaTV is maintaining a consistent recordand it is gradually improving itsposition. However, its averagerevenue though not negligible isrelatively lower than the revenueshare of top two channels andcloser to the third.

Table 3: Revenue Share of TV Channels - An Evaluation(Major players in entertainment specific service providers in Telugu TV sector

Channel Co-efficient of Range

Arithmetic mean Standard deviation

Co-efficient of variation

Gemini 0.157 38.76 4.17 10.76 Teja 0.448 14.46 5.09 35.20 ETV 0.396 23.04 7.57 32.89 Maa 0.333 9.30 2.49 30.75

(Basis: Table 2)

4. Co-efficient of variation shows thatGemini's revenues are moreconsistent followed by Maa, ETVand Teja.

5. Geometric mean over the givenperiod indicates that ETV'srevenues during the period of studyare decreasing at 2.63% per annumwhereas Maa TV's share isincreasing by 2.1% every year.Therefore, it is most likely that ETVsloss is MAA TVs gain. Nothingmuch can be stated about ZeeTelugu's share of revenues which isgradually increasing, as it is arelatively new channel

1.5.3 Optimal Mix: An attempt ismade to find the optimal mix that suitschannels as per the classification madeaccording to their revenue generationcapacity. Accordingly the channels arecategorized into top rated channels,channels in the fray, channels which arelagging behind. A Linear Programmingmodel is used to find the number ofmega budget, moderate and low budgetprogrammes to be produced by the

channels per week by taking theprojected revenues and costs per week.

The projected revenues and costsare computed as follows:

Programming costs of mega,moderate and meager budget are takento be Rs 1, 00,000, Rs. 40, 000 and Rs15,000 respectively. Other expenses andincidentals @10.71 percent have beenadded to the programming costs. Thecalculation is made on the basis ofpercentage of projected incidentals tothe projected programming costs. Thecosts in respect of channels in the frayand channels which are lagging behindare taken to be 5 percent and 10 percentless than the top rated channels.

The projected costs are shownbelow:

Formulation of Linear ProgrammingProblem: In order to ascertain the optimalmix a channel has to adopt, linearprogramming has been formulated. Themodel is purely suggestive andadvisory. (*X1, X2 & X3 denote Megabudget, Moderate budget and Lowbudget programmes respectively.)

Top Rated Channels: There are 24spot buy slots in 4 minute tenure ofadvertising in a 30 minute slot (Theduration of each spot buy is 10seconds). The rates for the mega,moderate and low budget programmesare taken as Rs. 10000, Rs. 4000 and Rs.2500 per spot buy of 10 secondsrespectively. The projected cost perweek is taken to be Rs.1,80,00,000.

Max Z = 2, 40,000 X1 + 96,000 X2 + 60,000X3... Objective function

Subject to X1 + X2 + X3= 336 … Timeslot constraint(24hrs x 2 half an hour slots x 7 days=336slots)

1,10,715 X1 + 44,285 X2 + 17,145 X3 <1,80,00,000.. Cost constraint

X1, X2, X3 >0.. Non negativityconstraint

Solution: X1= 130.8 ~ 131 slots.

X3= 205.2 ~ 205 slots.

Z= max Rs.4, 37, 04,623

Marketing Matters


Category of the programme

Top rated channels Rs.

Channels in the fray Rs.

channels which are lagging behind

Rs. Mega budget 1,10,715 1,05,000 1,00,000 Moderate budget 44,285 42,140 40,000 Meager / low budget 17.185 16,430 15,700

As per solver (excel), a combinationof 131 mega budget and 205 low budgetprogrammes would provide optimum mixwhich would generate a maximum spotbuy revenue of Rs. 4,37,04,623. Thechannel's revenue can be projected onthe basis of this figure. The channelsmay not be in a position to generateany revenue for 8 hrs between 11 p.m.and 8 a.m., and out of the other slots,some remain unsold. Keeping thesefactors in view the revenue projectionis made as follows.

The projected monthly revenuewould be around 8 crores in rupees.

Gemini is occupying the topposition among the Telugu TV channelswith revenue of about eight to ten crorerupees per month. The revenues ofMAA TV and ETV are around Rs 6 to7.5 crores per month. The projectedrevenue as per linear programmingproblem is very much closer to the topchannels revenue. Hence it can beconcluded that 131 mega budgetprogrammes and 205 low budgetprogrammes in a week would be theoptimal mix for a top rated channel tofare well in Telugu TV sector.

Similar type of projection throughLPP is made for channels in the fray andthe channels which are lagging behind.

Channels in the Fray: Here, therevenues are brought down by 20percent and costs are reduced by 5percent. The projected cost per week istaken to be Rs 1, 50, 00,000

Particulars Amount (Rs.) Maximum advertisement revenue as per LPP solution per week Less: Allowance of 1/3rd for time slots between 11 pm and 8 am Less: Allowance @25% for discount & unsold slots during the timings not covered above Projected revenue per week

4,37,04,623 1,45,68,207 2,91,36,416 72,84,104 2,18,52,312

As per solver (excel), a combinationof 107 mega budget and 229 low budgetprogrammes would provide optimal mixand The projected monthly revenuewould be around 5 crores in rupees. TejaTV and ZEE Telugu are the channelswhich are in the fray among the TeluguTV channels with a revenue of aboutfive crore rupees per month. Theprojected revenue as per linearprogramming problem is very muchcloser to the revenues of thesechannels. Hence it can be concludedthat 107 mega budget programmes and229 low budget programmes in a weekwould be the optimal mix for a channelin the fray to fare well in Telugu TVsector.

Channels which are lagging behind:Here, the revenues are brought downby 40 percent and costs are reduced by10 percent. The projected expenditureper month is taken to be Rs 1.20,00,000.As per solver (excel), a combination of80 mega budget and 256 low budgetprogrammes would provide optimal mixand the projected monthly revenuewould be around Rs 2 crores.

Among the Telugu TV channelsVissa, DD8 and Gemini music withrevenue of less than 2 crore rupees permonth are lagging behind in thecompetition as far as revenues areconsidered. The projected revenue asper linear programming problem is verymuch closer to the revenues of thesechannels. Hence it can be concluded

that 80 mega budget programmes and256 low budget programmes in a weekwould be the optimal mix for a channelwhich is lagging behind to fare well inTelugu TV sector. All the channels inthe entertainment specific sector areproducing about 50-70 mega budgetprogrammes in a week and as per thesolution to the LPP, this area is underutilised.

1.5.4 The other findings of the studyare as follows:

1. The establishment cost which is aone time cost ranges between 25crores and 100 crore rupees for aTelugu TV channel. There fore inorder to sustain and for the effectivepay back period, the channels arerelying heavily on Cinema andcinema based programes

2. The focus of Zee Telugu TVchannel in the initial stages of itslaunch was on promotionalprogrammes, give aways andcontests. DD8 is adopting societalmarketing approach. Gemini musicfollows market penetration policy.Gemini TV follows market leaderpolicy. Maa TV quotes relativelylower tariffs when compared to ETVand Gemini TV. The strategy of TejaTV is closer to a bypass attackthrough which it has brought downthe revenue share of its closecompetitors.

3. The major source of Income for allthe channels is spot buy. The newsspecific channels pool additionalsources through Time check,Patches and scrolling.

4. The channels follow one pricepolicy for scrolling and cable tariffs.

1.5.5 Effect of pricing strategies on the

Marketing Matters


outcomes: The following tableshows the effect of certainstrategies and methods adopted bythe TV channels on their cost andrevenues. The percentages arecalculated on projections based onthe projected costs and revenues.

It may kindly be noted that theabove calculations are purely based onthe projections made by theresearchers. The outcomes however aredependent on the initiatives andstrategies of the channel, adaptabilityand also the commitment levels of thepersonnel.

1.6 Conclusion: The success of aTelugu Television channel depends onblending of the programmes as per theviewer's perception / choices, and alsothe financial and non-financialresources available with the channel.The cost and revenue strategies areevolved on the basis of ratings for theprogrammes, viewers preference for

Impact on Strategy cost Revenues

1. Repeat programmes Reduction to the extent of 20- 30 percent

May go up by around 3 percent

2. Dubbed versions Reduction to the extent of 30- 50 percent

May go up by around 5-10 percent

3. Agreements with cinema producers for the acquisition of cinema rights

Reduction to the extent of 15- 25 percent


4. Centralization of marketing department Reduction to the extent of 10- 20 percent


5. In – house productions Reduction to the extent of 10- 20 percent

May go up by around 5 to 7 percent

6. Staffing (assigning various heterogeneous tasks to the staff)



7. Content library - May go up by around 2 to 3 percent

8. DTH and CAS Costs may go up by 10 percent May go up by around 25 to 30 percent

9. Digital Transmission in place of analogue Transmission



10. Own print medium in addition to the channel

Costs may go up by 2-3 percent due to advertising expenditure


11. Mega budgeted reality shows Costs may go up by 20-30 percent due to the cost of sets


programmes and channels, time bands,agreement with the private producers,direct and indirect cost involved,competition prevailing, feed back fromadvertisers and marketing staff, brandsponsor decision, price Vs non-pricecompetition, equipment andinfrastructure available, brandleadership, stability and so on.

Teja TV's strategy is closer to a bypass attack; ETV in spite of it beingattacked by the lower price competitorshas neither increased nor decreased itsprice. Gemini follows market challengerstrategy; MAA TV is following marketchallenger strategy; Gemini musicfollows market penetration policy. Thestrategy of Gemini news channelappears to be fixing price below thecompetitors' price; the focus of ZeeTelugu is on promotional programmes,contests and give aways. The channel,fixes price below competitors' price asdone by Teja TV. The revenues of DD8

and Vissa are meager and they needproduct modification, marketmodification and brand repositioning.The low income generating channelsshould try to adopt line pruning andline modernization. ETV appears tofollow single price policy for prime bandprogrammes.

Price competition in Telugu TVsegment is increasing due to theincrease in the number of competitorsin the fray. The success of any channeldepends on its ability to impress uponthe viewers with qualitativeprogrammes and cost effectivestrategies.

References

*1- indiatv.com & mytelugu .com

*2,3 - *4 - Zeenews.com

*5 - blog. telugu.world com

* 6- Indian television .com

*7 www.telugunews.blogspot.comq

Marketing Matters


Global Financial Crisis,Risk Management &Financial StabilityGlobal financial crisis in the aftermath of US sub-prime crisis has posed a seriousthreat to the financial stability. There is a need to draw lessons for future,especially from a financial stability perspective in order to rebuild the globalfinancial architecture. Financial stability ensures efficient and smooth inter-temporal allocation of resources, precise assessment and reasonable pricing offinancial risks, and comfortable absorption of economic shocks, and therefore,is sine qua non for the economic well-being of any country. As such, restoringsand maintaining financial stability is the biggest challenge for the centralbanks world over. This paper makes an attempt to provide an insight over theseissues.

Dr. Ashish Srivastava*Sheetal Kumar**

*Manager, Reserve Bank of India, Jaipur.** Associate Consultant, Oracle FinancialServices Software Limited.

G lobal financial crisis as aconsequence of unprece-dented events in the aftermath

of US sub-prime crisis has badlyaffected the global economy and poseda serious threat to the global financialstability. Since the start of the crisis, thecredit write-downs on U.S. - originatedassets by all holders are now estimatedat USD 2.7 trillion . The total write-downs, including the assets originatedin other mature market economies, couldreach USD 4 trillion over the next twoyears, approximately two-thirds ofwhich may be taken by banks . Eventhe emerging economies are not sparedfrom its adverse implications, despite alower degree of exposure of theirfinancial institutions and comparativelyless developed nature of the financialmarkets. The crisis has alsonecessitated a phase of consolidationand restructuring to safeguard financialstability amidst the crisis. In thiscontext, financial stability challengerefers to maintaining smooth

functioning of financial system andensuring the system's ability to facilitateand support the efficient functioningand performance of the economy; andhaving in place the mechanisms toprevent financial problems frombecoming systemic or from threateningthe stability of the financial andeconomic system, however, withoutundermining the economy's ability tosustain growth and perform its otherimportant functions .

Global Financial Crisis: A Recapitulation

A recapitulation of the genesis ofthe global financial crisis helps indrawing lessons for future, especiallyfrom a financial stability perspective.Now, it is well established that the crisisin the US financial markets emanatedfrom the neglect of the fundamentaltenets of banking and finance in themad rush for business expansion andprofit maximization even to the extentof greed, at the cost of commonbusiness prudence. This wasmanifested in form of drying of liquidityin the market, which ultimately broughtglobal giants on their knees. A reviewof the run-up to the events leading to

the unbelievable meltdown at WallStreet reveals that it was a crisis waitingto happen due to the inherentweaknesses in the financial architectureand regulatory lapses in the US markets.It began with a glut of cheap liquidityand ended in an unforeseen collapse ofthe markets and institutions due toliquidity crunch. In a way, liquidity hasbeen both the cause and effect of theglobal fiasco. Following paragraphspresent a summary of events, which ledto the global crisis.

a. Liquidity Glut: The low interestregime ushered in boost the saggingeconomy resulted in dramatic fall in theinterest rates in the US economy during2001 to 2005-2006. The stable financialenvironment with an abundance ofcheap liquidity prompted institutionsand investors alike to go for aggressiveinvesting and sub-prime lending in thecommercial and residential real estateand consequent complex structuredproducts that emanated through theprocess of securitization and use ofspecial investment vehicles. However,in most of the cases, such euphoriaresulted in mispriced and excessive risktaking.

b. Lax Credit Appraisals: Theproblem of ill-informed and incorrect riskpricing was further compounded byloosened credit standards and poorunderwriting practices, whichpropagated at each stage of thecomplicated process in which a riskyhome loan was originated, became anasset-backed security that then formedpart of a collateralized debt obligation(CDO) that was rated and sold toinvestors.

c. Ratings and StructuredProducts: Another grey area was theblind reliance on rating agencies toevaluate the risks. Too much weight wasgiven to the assigned ratings and toolittle to either the productdocumentation or independentinvestigation of the underlyinginstruments. In fact, overemphasis on



quantitative risk measurement,especially for credit risks, withoutapplying an overall approach to riskmanagement did a lot of damage.Moreover, the complex structuredproducts suffered from both adegradation of the underlying collateral,mostly sub-prime mortgages andinsufficient understanding of how thestructures would work during aneconomic meltdown. The extent andspeed of rating downgrades ofmortgage-backed securities and otherstructured products compounded theproblem. The market learned to its perilthat the ratings of structured creditsecurities are more likely to suffer rapidand severe downgrades than are othercorporate securities. Frequent andvolatile downgrades badly hit theinvestors' confidence in the ratingprocess, created apprehensions in themarket and led to its ultimate collapse.

d. Loss Provisions: With thedowngrades, the mark-to-market(MTM) losses of banks soared andresulted in poor quarterly results, whichwere not taken favourably by the market.Markets instead believed that that theseinstitutions were hiding the real lossesin their books. The declining faithspread like an epidemic and gave short-sellers a chance to bring doom in themarket, which created a vicious circleof confidence erosion and crashedvaluations. It is important to note thatMTM losses were a major componentof losses posted by US investmentbanks, after which they were ruthlesslyhammered by the market.

e. Funding Liquidity Risk: Theshattering of market confidence wasfurther accentuated by the heavydependence on wholesale funding withhigh leverage by these institutionswhich resulted in a huge fundingliquidity risk, a major risk that wasconveniently ignored during the daysof liquidity glut. The trend toward theuse of wholesale funding was motivatedby a stable, low-interest-rateenvironment. However, in adversesituations, the wholesale market dried

and fled to safer havens, thereby makingit really difficult for institutions toremain funded and liquid. The gravityof the problem of poor funding liquiditywas further compounded by the tradingilliquidity in the structured products. Asthe valuations went haywire, the over-the-counter (OTC) market of asset-backed securities (ABS), credit defaultswaps (CDS), collateralized debtobligations (CDO) gradually dried up.This exposed the vulnerability ofinvestments made by banks in suchinstruments and raised questions on thestrength of the balance sheets and thehuge risks of the hefty leverage andfunding mismatch at big investmentbanks. The sudden shrinking of theovernight Repo market also contributedto the downfall.

f. Market Collapse: The moreserious stresses arose when it wasdiscovered that the funding methodsused by banks to hold these illiquid,hard-to-value structured credit productswere flawed. Many of these productswere being held in off-balance-sheetentities of major banks, i.e., structuredinvestment vehicles (SIVs). There wasthe problem of opacity as the exactholdings of these entities were nottransparent. With deterioratingconfidence, many holders of securitiesthat were backed by illiquid structuredcredit products cashed out of theirholdings, especially if they suspectedthe credit products held were exposedto sub-prime mortgages. The drying upof the market in-turn led tounprecedented illiquidity in the inter-bank market due to the completeabsence of funding and consequenttendency of banks to hoard liquidity inview of the lost confidence. Thisultimately resulted in a total collapse ofmarkets and forced giants like Lehman,Merrill Lynch, Bear Stearns, et.al. toclose their shutters.

The review of the factors causingthe global meltdown clearly indicatesthat the correct measurement,management and pricing of the risk arevery importance in the financial sector.

Moreover, the risk managementfunctions of individual financialinstitutions should encompass asystemic perspective and financialstability overview for all their decisionsand actions. At times, it happens thatindividual actions and decisions whichotherwise look perfectly rational, mightprove hazardous from a systemicperspective. For example, in case ofliquidity crunch, hoarding of liquidityby individual institutions might makesense at the micro level, but suchindividual actions collectively lead to acomplete collapse of the market at thesystemic level. Moreover, the riskmanagement architecture in the financialsector assumes greater significance inview of the increasing volumes andcomplexities of financial transactionsand also from the financial stabilityangle. Developing a robust and securefinancial infrastructure is now beingincreasingly recognised as a keycomponent of financial stabilityframework.

Banking and Risk Management

Risk is understood as quantifiableuncertainty about the future outcomes.A certain degree of risk is inherent inany form of business and the bankingis no exception. Rather, banking is aninherently risky business due to highleverage, asset-liability mismatches anddependence on short term borrowings,which result in a significant degree offunding and market liquidity risks.Liquidity strains are one of the greatestthreats to the banking due to possibilityof systemic failure, contagion and 'run'on the bank, if the public confidence iseroded. Funding Liquidity Risk, i.e., therisk of not rolling over of funding bythe counterparties and the MarketLiquidity Risk of a generalizeddisruption in assets markets leading toilliquidity are the fundamental reasonsfor bank failures across the globe.Investment banks, though slightlydifferent from the traditional banks, arealso subject to such risks which aregeneric to the banking, finance and



investment business. Nevertheless, theaggressive financing and investmentstrategies adopted by these institutionsalso expose them to a significant degreeof risk of downfall even on account ofslightest miscalculation and failure inreading the market correctly. Added tothat, the credit risk is always the mostfundamental risk in the bankingoperations. Operational andreputational risks are inherent in anyform of business and so in the case ofbanking. Since, the banking is a matterof public confidence, all kinds of risks,viz., credit risk, market risk, operationalrisk or any other type of risk impingeupon each other and affect the overallrisk profile of a bank. The fiduciaryresponsibility in banking and the onusof protecting depositor's money makesthe risk management as the single mostimportant managerial function in thebanking operations. This in turns helpsin maintaining macro financial stabilityby allowing smooth operations in thefinancial system and ensuringconfidence in the institutions, marketsand financial infrastructure.

Recent Developments

However, in recent years banks haveadded significant quantum of illiquidassets in their trading books andtherefore, trading books have alsobecome a source of liquidity strains.Although banking involves a numberof risk factors viz., credit risk, marketrisk, operational risk, reputational risketc., yet the liquidity risk remains thesingle most important factor affectingthe survival of highly leveragedinstitutions like banks. Recent liquiditycrunch in certain large internationalbanks as well as in the market as a fall-out of the global turmoil has furtherstrengthened the need of soundliquidity risk management in banks andfinancial institutions. Funding liquidityrisk is the risk that a bank might not beable to efficiently meet both expectedand unexpected current and future cashflows and collateral needs withoutadversely affecting either the day-to-

day operations or the financial healthof the bank. It differs from the marketliquidity risk, which is the risk that abank might not easily offset a tradingposition without significantly affectingthe market price of the trading assetsdue to the inadequate market depth or ageneralised market disruption. However,in certain cases, such as run on a largesystemically important bank, the samefactors might trigger both types ofliquidity risks. While, the fundingliquidity risk is more important in thecontext of the banking book, the marketliquidity risk has greater relevance inthe context of assets in the tradingbook. The global financial crisis hasshown that the challenges to financialstability are increasingly becomingmore complex and as such, there is aneed of an integrated approach to riskmanagement comprising, effective riskmanagement, precise risk pricing, marketdiscipline mechanism, due diligence andappropriate policy responses.

Financial Stability

Financial stability is a situation inwhich the financial system is capableof satisfactorily performing its three keyfunctions simultaneously, i.e.,efficiently and smoothly facilitating theinter-temporal allocation of resourcesfrom savers to investors and theallocation of economic resourcesgenerally; accurate and well managedassessment and reasonable pricing offorward looking-financial risks, andthird, comfortable if not smoothabsorption of financial and realeconomic surprises and shocks . As amatter of fact, all these three aspects,viz., inter-temporal allocation ofresources, risk assessment and pricingas well as shock absorption abilityencompass both endogenous as wellas exogenous elements. It is beingincreasingly recognised that threats tofinancial stability arise not only fromexternal shocks and surprises but alsofrom the disorder created by imbalancescaused by endogenous factors over aperiod of time during which most often

expectations and risks are mispriced. Interms of risk pricing, financial stabilityis also understood as a condition inwhich an economy's mechanisms forpricing, allocating and managingfinancial risks are well stabilized . Riskmanagement and precise risk pricingtherefore, form an integral part offinancial stability framework. While theultimate goal of a financial stabilityframework remains to prevent problemsfrom occurring or resolve problems ifprevention fails; however, to get a clearperspective into the issues concerningfinancial stability, one has to visualiseit as a continuum (Figure - 1).

Since the financial system isdynamic, the financial stabilitycontinuum reflects different possiblecombinations of the financial system'sconstituents. Such continuumoriginates from the assessment of thefinancial stability and ranges from'inside stability corridor' to 'outside thestability corridor' with an in-between'near boundary stability corridor'. Acombination of exogenous andendogenous factors affects thiscontinuum, about which a regularassessment should be made. Dependingupon the assessment and other relatedfactors, necessary action is taken. Incase, the financial system is assessedto be in the zone of stability, theappropriate policy is mainly preventive,aimed at maintaining stability by marketdisciplining mechanisms and officialsupervision and surveillance. Further,if financial system is assessed to in thestate of stability but moving towardsthe boundary with instability (forinstance, increasing asset price bubble),the remedial action is moral suasion andintense supervision. Finally, in casefinancial system is found to be in a stateof instability, the appropriate policiesare 'reactive' aimed at problemresolution and bringing the system backin the zone of stability.

Restoring Global Financial Stability

The crisis has highlighted manyweaknesses in the global financial



system architecture, some unknownknowns and many known unknowns.The global meltdown has however,provided an opportunity to initiateeffective steps to streamline the globalfinancial system and safeguardingfinancial stability by addressing thecracks, loopholes and regulatory lapses.The Working Group on 'EnhancingSound Regulation and StrengtheningTransparency' constituted by G20leaders has also reviewed the globalturmoil and made recommendations forstrengthening international regulatorystandards, enhancing transparency inglobal financial markets and to ensurethat all financial markets, products andparticipants are appropriately regulatedor subject to oversight, depending ontheir circumstances.

A number of steps are to be takenfor repairing the damage, strengtheningthe system and preventing any future

Figure 1: Financial Stability- Factors, Continuum and Actions [Based on Schinasi, 2006]

catastrophe by the developed as wellas emerging economies. A summary ofthese is as under -

1. Liquidity Maintenance - As thecrisis was primarily catalyzed by aliquidity crunch and consequentcollapse of market confidence,therefore, as a prerequisite, thecentral banks must prevent runs onbanks and financial institutions.They can do so by reassuringdepositors that bank deposits aresafe and also by providing liquidityto financial institutions againstgood collateral. Although, at times,the classic moral hazard of centralbanking comes in its way, yetliquidity maintenance in the systemis of utmost importance.

2. Managing Assets Toxicity andExcessive Risk Taking - Identifyingand dealing with assets toxicity is amajor issue. Regulators must

remove the reasons leading topresence of distressed and toxicassets on the balance sheets offinancial institutions. There aredeeper structural issues, which areto be resolved. One of the rootcauses of this crisis is the regulatoryfailure to guard against excessiverisk-taking in the financial system,especially in the US. We must ensureit does not happen again, not onlyin US but anywhere including in theemerging economies. Theimportance of prudential regulation,accounting standards andtransparency needs to bemanifested. Regulations need to bemade simple, easily comprehendibleand implemented and supervisedthoroughly. The role of marketplayers as well as credit ratingagencies needs to be rethought,with greater public scrutiny.



However, this requires improvedcoordination mechanisms betweenvarious financial authorities as wellas mandates for all financialauthorities to take account offinancial system stability, andeffective tools to address systemicrisks.

3. Capital Augmentation -Recapitalization of weak but viableinstitutions and careful liquidationor restructuring of failed institutionsneeds to accorded priority. Anotherissue at the core of this crisis wasthe fact that the financial system hadtoo little capital. Although adequacyof capital to cushion against risksof such magnitude is debatable, yet,as the system shrinks and badassets are removed, manyinstitutions might lack sufficientcapital to safely extend fresh creditto the economy. The bankingsystem needs additional equity toabsorb further write-downs as creditdeteriorates, and risks broaden toencompass non-bank institutions.While this is of immediateimportance to US and Europeanfinancial systems, nevertheless, theneed for capital augmentation isequally pronounced in the emergingeconomies. Likely impact of globaldeleveraging process alsonecessitates substantial capitalaugmentation. Financial institutionsand households, in particular, hadbuilt up record levels of debt andare now seeking to reduce theirleverage. Deleveraging in advancedeconomies and balance sheetadjustments has strong negativeglobal ramifications, particularly foremerging economies.

4. Managing Systemic Risks - Riskmanagement at individual banks hasso far largely focused on protectingthe institution while convenientlyignoring systemic risks. As a result,actions and management practices,which make sense at the level of oneinstitution to ensure its survival,

have resulted in collective irrationaloutcomes. There is an urgent needto expand the scope of regulationand oversight needs to include allsystemically important institutions,markets and instruments. Thisrequires enhanced information forfinancial authorities on all materialfinancial institutions and markets.Large complex financial institutionsrequire particularly robust oversightgiven their size and global reach.

5. Good Corporate Governance - Goodcorporate governance, as part of acountry's legal infrastructure, ishighly relevant for the stability offinancial markets and systems. Thisview has gained increasingacceptance from the lessons learntfrom the present financial crisis andalso those of the last two decades.It is widely accepted that aframework of good corporategovernance should be based onincentives to induce various interestgroups to be committed to theirexpected roles and responsibilities.As regards the incentives of themanagement for prudent behaviour,the crisis has shown, among otherthings that the confusion regardingthe principal-agent relationshipsbetween the management and theboard can result in serious negativeoutcomes, such as unsound risktaking by management . Moreover,the compensation practices shouldpromote prudent risk taking.Promotion of well functioningcorporate governance has alwaysbeen in the interests of financialstability. Respective central bankshave a duty to adopt preventativeapproach, while focusing onpromoting well functioningcorporate governance in banks andfinancial institutions as a part offinancial stability mechanism.

6. Market Discipline - Anotherimportant aspect of the financialstability process has been the roleof market discipline. The more

efficient financial markets are; themore one can rely on marketdiscipline as an effective incentivefor bank directors, management,shareholders and supervisors.While structuring the legal andsupervisory framework, the need tostrike a balance between regulationand incentives from adhering tothose rules by exploiting marketdiscipline is far greater in today'scircumstances. Better marketdiscipline helps an endogenousgovernance system. However, untilperfect market conditions can beachieved with a self-imposedgovernance system, the externallyprescribed regulations are the onlyway out. However, even when theregulations are largely exogenous,they should be oriented to work withthe market forces rather than actingagainst them.

7. Regulations and InternationalAlignment - Crisis resolution isextremely complex in a world of wide-spread risks, tiered structures andderivatives. Central banks arerequired to innovate rapidly andmove ahead of the market to containthe outbreak, repair the system andprevent any such recurrence.Greater standardization ofderivatives contracts, ratingmethodologies and the use of risk-proofed central counterparties;improved accounting standardsthat better recognize loan-lossprovisions; effective enforcement ofregulation that is coordinatedinternationally by nationalauthorities and internationalstandard setters working togetherand assisting each other instrengthening financial regulatoryand oversight frameworks areneeded. Complications could arisefrom the lack of coordinationbetween national regulators due toregulatory arbitrage across nationaljurisdictions. As such, internationalalignment of financial sector



regulations has become a necessityfor global financial stability.

Conclusion

The genesis of the global financialcrisis can be attributed to three majorfactors, viz., excessive risk taking andincorrect risk pricing; liquiditymismanagement; and lack of regulationto keep pace with market innovationsas well as failure to understand theirsystemic implications. As a result, theglobal financial markets have beenbadly hit and financial stabilitychallenged. Nevertheless, by exposingthe inherent weaknesses in the system,it has provided an opportunity toimprove upon the financial system

architecture including risk management,which must be taken on priority.Moreover, impact of real economy onthe financial stability should also berecognised and necessary precautionsshould be taken accordingly. Bringingback the credibility in the globalsystems, improving risk managementsystems and reclaiming the marketconfidence is essential to repair thedamage and deal with the challenges insafeguarding global financial stability.

References1Global Financial Stability Report, April2009, International Monetary Fund (IMF)2 ibid3Schinasi, G J; Safeguarding Financial

Stability: Theory and Practice, 2006, IMF,p.p. 1004Structured products entail aggregatingmultiple underlying risks, such as marketand credit risks, by pooling instruments andcreating products subject to those risks andthen dividing the resulting cash flows into"tranches" or slices, paid to different holdersas per their respective risk appetite andreturn preference. [http://www.imf.org]5Schinasi, G J; Op. Cit., p.p. 826ibid., p.p. 837http://www.rbi.org.in/scripts/Publi-cationReport Details. aspx? Url Page= & ID = 5498Halme, L.; Bank Corporate Governanceand Financial Stability, Centre for CentralBanking Studies, Bank of England, May 2000q


DEFER IMPLIMENTING CAS MANDATORILY w.e.f 1st April, 2010Dear Mr. President,

Greetings to you at the Dawn of the New Year, and wish you and your collegues all the best to carry theprofession farther, to meet the ever growing demands of the Cost Accounting Faternity.

The Council of ICWAI, has decided in its wisdom, to make Cost Accounting Standards Mandatory w.e.f, 1stApril 2010. As you, and your Council is aware, due to various reasons the progress on Cost Accounting Standards,particularly the one on Generally Accepted Cost Accounting Principles has been delayed and is yet to bePronounced/ Released by CASB of ICWAI.

The Emphasis on Cost Accounting Standards arose, as a result of the Expert Group on Cost Accounting RecordRules, Report Rules, and Standards, dispensing with Record Rules, and following Principle based Approach, withreporting based on Cost Accounting Standards. As on date, the 1st January, 2010, MCA is yet to implement therecommendations of the EG report. At this stage making Cost Accounting Standards mandatory for reporting isakin to putting the Cart before the Horse.

Secondly, for any new procedure to be followed, time has to be given of at least one financial year, for the auditorand auditee, after the new reporting system comes into effect, as is normally done by the other ProfessionalBodies.

Thirdly, the industry and stake holders, must respond to the New Reporting System, when only the Cost Accountant/Auditor can effectively comment in his report, based on the Cost Accounting Standards.

In view of many issues not getting settled, I feel the wisdom of the Council, should be to place things in properpositioning, before implementing the reporting based on Cost Accounting Standards.

I am sure you will be able to ponder over these issues, raised by me, and give a considered reply, which isawaited, in the interest of the Cost Accounting Community at large.

Regards,

V.Kalyanaraman

Past President, ICWAI & Practicing Cost AccountantDated 1st January 2010

Letter to Editor


PEOPLE AT THE HELM

Mr. Kalyan Kumar Ghosh (M-11726) has been appointed as full time Director to the Board of West BengalState Electricity Distribution Company Ltd. (WBSEDCL). Mr. Ghosh was formerly Executive Director(Finance) of WBSEDCL. We wish Mr. Ghosh the best for his new responsibility.

HEARTY FELICIT ATIONS

Mr. Sunil Deshmukh, FICWA (M-10691), LLB. and Company Secretary by qualification has been promotedas Managing Director of Indo-Jordan Chemicals Company Ltd., Amman in Jordan. Mr. Deshmukh hasserved as Chairman of Aurangabad Chapter of Cost Accountants in 1999-2001. We wish him the very bestfor his future roles.

HEARTY FELICIT ATIONS

Shri Pramod Gupta, our member has been promoted as Plant FinanceController at General Motors, Halol. He was working as Sr Manager-Finance responsible for GPSC Finance. In his last assignment before joiningGM India, Shri Gupta worked with Climate Systems India Limited.

HEARTY CONGRATULA TIONS

to Shri Vinayak S. Khanvalkar on being elected as President of

the Institute of Company Secretaries of India (ICSI) w.e.f. January

19, 2010

And

to Shri Anil Murarka on being elected as Vice President of the

ICSI w.e.f. January 19, 2010.


Advancement to FellowshipDate of Advancement :10

th November 2009

M/8197Shri Ram Avtar Khandelwal,MCOM, FICWAFlat No. 2, Type-V, StaffColony, BTPS., Badarpur,New Delhi 110044

M/10081Shri S. Ramakrishnan,MCOM, FICWADeputy General Manager(Finance),O/o. The General ManagerTelecom, Bharat SancharNigam Ltd.,Residency Area,Indore 452001

M/12643Shri Mukesh Kumar Gupta,BCOM, FICWASCO 57, Sector 20-C,Chandigarh 160020

M/13545Shri K. Ravindran,BCOM, FICWA28, Srinivasa Gardens, IndraGarden Road, Backside ofBalasubramania Mill Qtrs.,Uppilipalayam,Coimbatore 641015

M/14571Shri Hari Krishan Sharma,MCOM, FICWA# 162, M.S. Enclave (Dhakoli),NAC Zirakpur,Zirakpur 140603

M/15442Shri Sanjeev Kumar Sharma,BCOM, FCA, FICWAWaljat Colleges of AppliedSciences,P.O. Box 197 Rusyal,P C 124, Muscat

M/15542Shri Surajit Roy,MCOM, FICWA24/A, Panchanantola Lane,Bowbazar, Kolkata 700012

M/17340Shri Prabhat Kumar Awasthi,BTECH(ELECT),MTECH(HONS), FICWAE-1, Sector-20, Noida 201301

M/18787Shri Upendra Kumar Dash,BCOM, FICWABranch Manager, The PeerlessGen. Fin & Inv. Co. Ltd.,Ganjam Branch, At :Krishnasaw Mill Complex,Aska Road,Berhampur 760001

M/20362Shri Rajiv Sharma,BSC, MA, MBA, FICWAH. No. 4A, Sector - 49, SainikColony, Faridabad 121001

M/20800Shri V. Arul,MCOM, MBA, FICWASr. Manager (Finance &Accounts), TataCommunications Ltd. (VSNL),Videsh Sanchar Bhavan, M.G.Road, Fort, Mumbai 400001

M/21900Shri Vipin Chandra Pandey,MCOM, FICWAJ.I.E.T. Campus, B-12, A.B.Road, Raghogarh,Guna 473226

M/23474Shri Sudeep Sharma,BCOM, FICWAH. No. 82, Urban Estate,Sector-4, Gurgaon 122001

M/23674Shri Pranab Kumar Chatterjee,BCOM(HONS), FICWAP.K. Chatterjee & Associates,Mathpara, Nirmaldanga,Gopinathpur,Bankura 722101

M/23999Shri R. Rajan,MCOM, LLB, FICWAAsst. General Manager,The Federal Bank Ltd.,Treasury Deptt., C-8,1st Fl., Laxmi Towers,Bandra-Kurla Complex,Bandra (East),Mumbai 400051

M/24057Shri S. Sivaramakrishnan,BCOM, FICWAPlot No. 45, Meenakshi Nagar,Guduvancherry 603202

M/24119Shri Akhil Jain,MCOM, FICWAAkhil Jain & Co., 34,Vidhyapuram, Makronda,Sagar 470003

M/24237Shri Venkata ReddyRamireddy,BSC, MBA(FIN), FICWAMecon House, 75 & 76, 40Ft.Road, Shree Ashok Nagar,P.O. Gandhinagar,Neyveli 607308

M/24276Shri Rajendra Kumar Joshi,MCOM, MSC, FICWAFlat No. B-403, DhauladharApartment, Plot No. 15,Sector-5, Dwarka,New Delhi 110075

M/24300Shri Muttavarapu Veera PratapKumar,MCOM, FICWAPratap & Associates,C/o. Shri M. VenkateswaraRao, #21,H. No. 8-2-393/2, BeemavaleyApts., Road No. 5,Banjara Hills,Hyderabad 500034

Admission to Membership

M/24303Shri P. Ashok Rao,BCOM, ACA, FICWA`Radhika`, No. 32, MruthyunjayNagar, (Angol Road), (BehindAshirwad Mangal Karyalaya),Tilakwadi,Belgaum 590006

Admission to AssociateshipDate of Admission :10

th November 2009

M/28297Ms Annapurna Shiv Kumar,BCOM, AICWAPlot No. 43/1, Sector-7, BehindJanata Market, Vashi, NaviMumbai 400703

M/28298Shri N Ramesh Natarajan,BCOM, ACA, AICWA458, Cross Cut Road, Tatabad,Coimbatore 641012

M/28299Shri VasudevarnivasPurushothaman Kishore,MCOM, AICWANew No. 40, Vasudevar Nivas,R.S. Nagar, Kavundam Palayam,Coimbatore 641030

M/28300Shri K. R. Narayanan,BCOM, AICWAF-184, Anna Nagar East,Chennai 600102

M/28301Shri S. Vijayaraghavan,BCOM, ACA, AICWANo. 38, "Murali KrishnaApartments", 5th Trust CrossStreet, Mandavelippakkam,Chennai 600028

M/28302Shri Saroj Raj Ray,MCOM, MBA, AICWAC/o. A K Thakur, F/132, Sector-27, Noida 201301


M/28303Ms Suchitra S.,MCOM, AICWA# 380, 7th Cross, SaraswathiNagar, Vijayanagar West,Bangalore 560040

M/28304Shri Khole Amit Shankar,MCOM, AICWABuilding No. J5/9, Vighnaharta,Aditya Nakoda Enclave No. 1,Co-op. Hsg. Society,Opp. to Big Bazar,Sinhgad Road,Pune 411030

M/28305Shri Susanta Ghosh,BCOM(HONS), AICWAFlat No. HC 6/12, 197 Flat(HPL Complex), Priyambada,Haldia, P.O. KhanjanchakDist- Purba MidnapurHaldia 721602

M/28306Shri Hemant Kumar Gupta,BCOM, AICWAB-602, Shakti Apartment, PlotNo. 18, Sector-5, Dwarka,New Delhi 110075

M/28307Shri Joshi Jayashree Shrikant,BCOM, ACA, AICWA153 Valmore Court, HopewellGrant, Pennington New Jersey,U.S.A., Pin - 08534-5191,New Jersey

M/28308Shri Mohan D.,BCOM, AICWA1282, Krishna Road,4th Cross,BEML Layout, RajarajeshwariNagar, Bangalore 560098

M/28309Shri Sethuraman Ganapathy,BCOM, AICWAC/o. Jarir Investment, PostBox 3196,3rd Floor, Olaya Street, Olaya,Riyadh-11471, Saudi Arabia,

M/28310Shri Kondapuram Anil Kumar,BCOM, AICWAFlat - 303, Malineni TowersRoad -4, Mallikarjuna Colony,Old Bowenpalli,Secunderabad 500011

M/28311Shri Dinesh Singh Adhikari,BCOM, MFM, AICWARZ-2681-B, First Floor, StreetNo. 28, Tuglakabad Extension,New Delhi 110019

M/28312Shri Manoj Kumar,MCOM, AICWAMetro Apartment, Block :A-5, Flat No. 4A, Sector-71,Noida 201301

M/28313Shri Rajaraman Pattabhiraman,BCOM, ACA, AICWA5407, Blairmore CT. Katy TX77450, U. S. A.,

M/28314Shri Balajee,BCOM, ACA, AICWAB-19, Palanam Apartments,146-B, Luz Church Road,Mylapore, Chennai 600004

M/28315Ms Naghma Salim,MCOM, AICWAC/o. Mrs. Sucheta Chatterjee,7E, Ballygunge Station Road,Kolkata 700019

M/28316Shri Lekhan NatwarlalThakkar,BCOM, AICWAC/101, Hari Om Tower,Near Swati Restaurant,Near Law Garden,Navrangpura,Ahmedabad 380009

M/28317Shri Ashok Kumar Jha,BCOM(HONS), AICWAC-4-96, Indradeep Society,Nr. Mahila College Road,Jamnagar 361008

M/28318Shri Narayan Babu,MCOM, AICWA18, Dr. Lohiya Colony, JailRoad, Shahjahanpur 242001

M/28319Shri Amit Bhatia,BCOM(HONS), AICWAC-4-16-C, Keshav Puram,Near Wazirpur Depot-I,New Delhi 110035

M/28320Ms. Santosh Rani,MCOM, BED, AICWA1608/I, Old Gadda Khana,Near Play Ways School, AryaSamaj, Patiala 147001

M/28321Shri C.V.L.N.S. Subramanyam,BCOM, AICWAHIG-30, Sai Baba TempleStreet, N E Layout,Seethammadhara,Visakhapatnam 530013

M/28322Shri Jaideep Tiwari,BCOM, AICWAA-3 Nehru Nagar, Bilaspur,Bilaspur 495001

M/28323Shri V. S. Venkatesh,BCOM, AICWAB-608, Bldg.- I,Koyna Co-op. Hsg,Soc. Ltd., Narendra Complex,Vaishali Nagar, Dahiser (East),Mumbai 400068

M/28324Shri Manoj Kumar Mishra,BCOM, LLB, AICWAL-1/106, Sector-G, L.D.A.Colony, Kanpur Road,Lucknow 226012


M/28325Shri Hemant Sota,BCOM(HONS), AICWAA-11, Surajmal Vihar,Delhi 110092

M/28326Shri Ranjit Jha,BSC(HONS), AICWARanjit Jha & Associates DeepApartment, G-4, HA-20,Sachindra Lal Sarani,Aswininagar, Baguiati,Kolkata 700059

M/28327Shri Kanker Singh Rana,MCOM, AICWADA-282, Sheesh MahalApartment, Shalimar Bagh,Delhi 110088

M/28328Shri Chandranil Agasti,BCOM(HONS), AICWAH/O. Pradeep Chandra, 20/5A,B.G. Bye Lane, Naktala,Kolkata 700047

M/28329Ms Priyanka Das,BCOM(HONS), AICWAMr. Netai Ghosh,C/o. A M Ghosh,88E/1, Dum Dum Road,Kolkata 700030

M/28330Shri Tarkeshwar KumarSriwastawa,MCOM, MBA(F), AICWA7/C, P K Das Lane, Near KaliMandir, Rishra, Dist- Hooghly,Rishra 712248

M/28331Shri Ravinder Singh,BCOM, AICWAHouse No. 2471, Phase-XI,Sector-65, SAS Nagar,Mohali 160062


M/28332Shri Kulkarni Amit Anant,BCOM, AICWA71, Rambaug Colony,Chitralekhashree Hsg. Society,Flat No. 17, Paud Road,Kothrood, Pune 411038

M/28333Shri Karthikeyan Rajendran,BCOM, AICWALIG-1, Flat-2A, GreenwoodSonata, Shrachi,New Town, Rajarhat,(Next to CityCentre II), Kolkata

M/28334Shri Santanu Ghosh,BCOM(HONS), AICWAI-4/96, 1st Floor,Sector-16, Rohini,Delhi 110085

M/28335Shri Jose Kurian,MCOM, AICWAC-80, NH-3, NTPC Colony,Vindhyanagar, Singrauli,Singrauli 486885

M/28336Shri Chhedi Prasad,BCOM(HONS), FCA,AICWAN 14/92-A, Saraynandan,Khojwan Bazar,Varanasi 221010

M/28337Shri Pokala Vansi NagendraMadhav, BCOM, MBA,AICWAHIG-9, Pitapuram Colony,Visakhapatnam 530003

M/28338Shri Goutam Guha,BSC, AICWAB-4, FB/9, ArundhatiApartment, Chawlpatty, NearArnapurna Oil Mill, Baguiati,Kolkata 700059

M/28339Shri Chaitanya Kumar Swain,MCOM, AICWANirmala PH-4B, Flat No. 10,Green Row, Laskarpur,Kolkata 700153

M/28340Shri L. Ananthanarayanan,BCOM, AICWAF-5,Prakriti, 367/368,100 Feet By Pass Road,Velachery, Chennai 600042

M/28341Shri Swarup Kumar Dutta,BSC, AICWAC/o. R C Kumar Makal TalaKalimandir, P.O. BallyDurgapur, Dist- HowrahBally-Durgapur 711205

M/28342Shri Ashok Kumar,MSC, AICWAH. No. 309, Mini MIG,Hemant Vihar, Barra-2,Kanpur 208027

M/28343Shri Suvendu Sekhar Sahoo,MCOM, AICWA14/19, 2nd Floor, 3rd Street,T G Nagar, Nanganallur,Chennai 600061

M/28344Shri Vinay Kumar,BCOM(HONS), AICWAC/o. Mithun Chakraborty, 38,Motilal Gupta Road,Kolkata 700008

M/28345Mrs Komal Satish Deshpande,MCOM, AICWA"Divyash", 710,Sind Co-op Hsg. Society,Aundh, Pune 411001

M/28346Shri Dibin Sebastian,BCOM, AICWAPattathil House, Chengal,Kalady, Kalady 683574

M/28347Ms Savitha R,BCOM, AICWAFlat - F, Brindavan Flats,45, Sathsangam Street,Madipakkam,Chennai 600091

M/28348Shri Suresh Chandra Nanda,MCOM, LLB, AICWAQtr. No. 2RB-34, CesuColony, Arundeyo Market,Cuttack 753012

M/28349Shri Vipin Namdeo,MCOM, AICWAC-114/1, Vidhya PalaceColony, Near Keshav VidhyaPith School, Aero-Drum Road,Indore 452005

M/28350Shri Manohar ShankarIndulkar,MCOM, AICWAA-27, Sanjivani Samrat CHSLtd., Nandivali Road, Opp.DNC Highschool, Dombivli(East),Mumbai 421201

M/28351Shri Malay KumarRoychowdhury,BCOM, AICWAMeh-13, Kanishka Road (S),Durgapur, Dist- BurdwanDurgapur 713204

M/28352Shri Tanmoy Das Gupta,MCOM, AICWA14, Sukumar Roy Path, CityCentre, Durgapur 713216

M/28353Shri Nayeemuddin,MCOM, AICWAC/o. Mohd. Shah, H. No. 16-7-385/4, Azampura,Post- Sahifa,Hyderabad 500024


M/28354Ms Naga Durga Deepa Jupudi,BCOM, AICWA148/D, Vengala Rao Nagar,Near Water Tank,Hyderabad 500038

M/28355Shri Hanuma Reddy Palagati,BCOM, MBA, AICWANo. 38, Gangai Nagar (1st Floor),5th Main Road, Velachery,Chennai 600042

M/28356Shri Maha Sagar MayurPasalapudi,BCOM, AICWAPlot No. 26, Madhura Nagar(Phase-3), Near Pragati Nagar(JNTU), Nizampet(P),Hyderabad 500090

M/28357Shri Rohan Kumar Bindala,BCOM, AICWA22-1-521, Kattelguda,Hyderabad 500024

M/28358Shri Pakala Venkata Ranga Rao,BCOM, AICWAS/o. P.V.V. Narayana Rao, PlotNo. 28, H. No. 1-1-27/1/28, SriRaja Rajeswari Nagar, Nr. AshokManoj Nagar, Kapra,ECIL-PO.,Hyderabad 500062

M/28359Shri Diptiranjan Panda,BSC, AICWAPlot No. 334/2525, VinayakNagar, Mahanadi Vihar,Cuttack 753004

M/28360Shri Goutam Gurudas Murkunde,BCOM, AICWA202, Trimurti Darshan Bld.-2,Parnaka, Opp. Shani Mandir,Vasai - West Thane 401201


M/28361Shri Naveen Bhardwaj,BCOM, AICWA403, Bustan Tower-C,AL Nahda,Sharjah United ArabEmiratesSharjah

M/28362Shri A. Boopathy,BSC, BL, FCS, AICWA11, Vinayagar Koil Street, EllaiPillai Chavady, Puducherry,Puducherry 605005

M/28363Shri Tarak Nath Saha,BCOM(HONS), AICWAAswinipally, PO. Barasat,Dist. - 24 Parganas (N),West Bengal, Barasat 700124

M/28364Ms C. U. Usha,MCOM, AICWAC-508, Natraj CHS., ShivShrusti Complex, MulundGoregaon Link Road, MulundWest, Mumbai 400080

M/28365Shri Koustav Goswami,BCOM(HONS), AICWA138, S.N. Roy Road, PO.Sahapore, PS. Behala,Kolkata 700038

M/28366Shri Anand Jha,BCOM, AICWA25, Lake Temple Road,Kolkata 700029

M/28367Shri Rajendra Nath Garai,BCOM(HONS), AICWA120, Pratapgarh (Near KunjaBhaban) Garfa, P.O.Santoshpur,Dist- 24 Parganas (S),Kolkata 700075

M/28368Shri C.V. Mahesh Kumar,BCOM, AICWASurvey No. 5-8 & 17-23,Krishnapuri Colony, WestMarredpally,Secunderabad 500026

M/28369Shri Rakesh Bihari,BCOM(HONS), MBA,AICWAC-76, NH-3, NTPC Colony,Vindhyanagar,Singrauli 486885

M/28370Shri Navin Kumar,BCOM(HONS), AICWAC-150, NH-2, NTPC Colony,Vindhyanagar,Singrauli 486885

M/28371Shari Ramakant Hegde,BCOM, MBA, ACS, AICWAFlat No. F3, Nish-3Apartment, 5th Cross,Ashwath Nagar, RMV IIStage, Bangalore 560094

M/28372Ms Pooja Kaushik,BCOM, AICWAVill- Kondli, Pandit Mohalla,Delhi 110096

M/28373Shri Rajesh Sai Iyer,BCOM, MBA, AICWA25-13 Madhuban, RitherdonRoad, Chennai 600007

M/28374Shri Manchikalapudi YathishKrishna,MCOM, AICWAD. No. 8-3-320/1/3/4, G-2,Saiparivar Apartments,YellareddygudaHyderabad 500073

M/28375Shri N. Ramkumar,MSC, AICWANo. 5, 14th Cross StreetExtension,New Colony Elumacai Nagar,Chrompet, Chennai 600044

M/28376Shri Samir Nath,BCOM(HONS), AICWAE-404, Jaipuria, Sunrise Green,12A AAhinsha Khand,Indrapuram,Ghaziabad 201010

M/28377Shri Balarama SomayajulaRavi,BCOM, MBA, BAL, AICWAGA-12, SBH Colony,Gaddiannaram, Dilsukhnagar,Hyderabad 500660

M/28378Shri Barun Kumar Banerjee,BCOM, AICWAA-8/17, Kalyani, PO-Kalyani,Dist - Nadia, Kalyani 741235

M/28379Shri Rohan Ulhas Vernekar,MCOM, AICWA585, Kasba Peth, Rale Estate,`B` Building, Pune 411011

M/28380Shri Jinson Stephen,BBM, AICWAFlat # 220, International City,China Cluster Building B4,P.O. Box 121026 Dubai,United Arab EmiratesDubai

M/28381Shri Rajneesh,BSC(HONS), AICWAA-66, Kendriya Vihar, Sector-56, Gurgaon 122002

M/28382Shri Saurabh Kumar Mishra,MCOM, AICWA492/3C Mahaveer Block,Bholanath Nagar, Shahdara,New Delhi 110032


M/28383Shri Sanjeev Suman,BSC, AICWAC/o. Rakesh Kumar 2/12,Moulsiri Road, Shipra Sun City,Indirapuram, Ghaziabad 201010

M/28384Shri Deepak Kumar Upadhyay,BA, AICWAF-48, J.P. Nagar, Rewa,Rewa 486450

M/28385Mrs Monika,MCOM, AICWAE-128, Sector-55, Noida 201301

M/28386Shri Chanchal Dua,MCOM, MBA, AICWA85-A, Ramesh Nagar,New Delhi 110015

M/28387Shri Narendra Kumr Surana,AICWAG-66, 1st Floor, Masjid Moth,Greater Kailash Part-II,New Delhi 110048

M/28388Shri Sanjeev Kumar Dhiman,BCOM, AICWAS/o. K C Dhiman H. No. 15,Laxmi Enclave, N.A.C.,ZirakpurMohali 140603

M/28389Shri Sanjeev Lohani,BCOM, AICWAPocket- E 73-D, Dilshad Garden,New Delhi 110095

M/28390Shri Sanjay Kumar Pathak,BCOM, AICWA53, Adarsh Nagar (Durga Lane),Konnagar, P.O. Bara Behra,Dist- Hooghly,Konnagar 712246

M/28391Shri Hemanth Kumar D,BSC, AICWADoor No. 381, 8th Main,5th Cross, RPC Layout,Vijaynagar, Bangalore 560040


M/28392Shri Rajnish Jain,MCOM, AICWA2-B-115, Sector-2,Vasundara, Near MewarInstitute, Ghaziabad 201012

M/28393Shri Pilaka Venkata Rao,BCOM, MBA, AICWAOMQ 149/01, AirforceStation, Mohanbari,Dibrugarh 786012

M/28394Shri S. Vijayaraghavan,BCOM, AICWAPlot No. 409, Andal NagarExtension, First Street,Velacherry, Chennai 600042

M/28395Shri Satyaveer Singh,BSC, AICWASMQ P-78/3,Bani Camp Air Force Station,Najafgarh, New Delhi 110043

M/28396Shri Md. Mujahid,MCOM, AICWAB-20, Baldeo Sahay Lane,Church Road, Ranchi 834001

M/28397Shri Jagdish Chandra Heda,MCOM, LLB, AICWA3 DH 24 Prabhat Nagar,Hiran Magari, Sector - 5Udaipur 313002

M/28398Shri Joby ThottappattukudiyilSaju,BSC, AICWAThottappattukudiyil (H),Kadathy, Meckadampu-PO.,Muvattupuzha,Ernakulam 682316

M/28399Shri Vinod Kallayil Sasidharan,BCOM, AICWAKallayil House,PO- Peramangalam, Thrissur,Thrissur 680545

M/28400Shri Jagadeesha Pandith,BSC, AICWANo. 10, 10th Main,Maheswara Nilaya,Hoskerehalli,Bangalore 560085

M/28401Shri Chandan Goswami,MCOM, AICWAQtr. No. Bhabani-29, NRLTownship, PO. NRP.,Dist- Golaghat,NRP Complex(Dt. Golaghat) 785699

M/28402Shri Mritunjay Prasad,MCOM, AICWAAV-15/6, Aditya Nagar,Malkhed, Dist- Gulbarga,Gulbarga 585292

M/28403Shri Kandha Kumar S.,BCOM, AICWA27/1287, Devi Kripa,River Landing Lane,Boat Jetty Road,VaduthalaKochi 682023

M/28404Shri Keyur Janak Jani,MCOM, AICWA302, Vasan Apartment, LinkRoad, Opp. Sharda Gram,Dahisar (East),Mumbai 400068

M/28405Shri Saikat Kumar,BCOM, AICWAP-66, Block - B," Pitri Chaya ",Poddar Prem, Lake Town,Kolkata 700089

M/28406Shri Krishnan Vaidyanathan,MCOM, MSC, AICWACorp. No. 15, H. No. 42016,6th Main, Shamanna Layout,Banaswadi, Bangalore 560043

M/28407Shri Mangesh Mukund DeokarBhosale, BCOM, ACA,AICWAA/24, Anjana C.H.S. Ltd.,Pestom Sagar, Road No. 6,Chembur, Mumbai 400089

M/28408Shri Ajay Kumar,MCOM, AICWAF-53, CSIR Appartment,Maharani Bagh,New Delhi 110065

M/28409Shri N. Sampath Kumar,BSC, FCA, AICWAA-1403, Avalon, Cliff Avenue,Hiranandani Gardens, Powai,Mumbai 400076

M/28410Ms Shah PriyankaRameshkumar,MCOM, AICWA36, Shrikant Nagar Society,Nr. Vyas Vadi, Nava Vadaj,Ahmedabad 380013

M/28411Shri Hitesh Vinodray Parikh,BE, AICWAReliance Greens, Sector-7,Block 112-C, Opp. R I L,Motikhavdi,Jamnagar 361142

M/28412Shri Suman Kumar Jha,BCOM, AICWAG/1, Kiran Apartment,297, B.B.D. Road, Hindmotor,Dist- Hooghly,Hindmotor 712233

M/28413Shri Vamsi KrishnaAndavarapu,BCOM, AICWAApt 71, 150 Howth Road,Clontarf, Dublin - 3Ireland,Dublin


M/28414Shri Subramani Veera Raghavan,BSC, ACA, AICWANo. 372, "Ramya",5th Main Road,K. R. Puram Extention,Bangalore 560036

M/28415Shri Sumit Gupta,BSC, MCOM, AICWA182/6, Vijay Nagar,Kanpur 208005

M/28416Ms. Margaret K. M.,BSC, AICWAKaithakulathu Nirappil House,P.O. MonippallyKottayam 686636

M/28417Ms Gopa Chakrabarty,BSC, AICWA"Saisadan", Flat No. B2, D/126,Ramgarh, P.O. Naktala,Kolkata 700047

M/28418Shri Deepak Ahuja,BCOM, FCS, MBA, LLB,AICWAF-1, N.V.D.A. Colony,Near Civil Lines,Khandwa 450001

M/28419Shri Kumar Aman Bharti,BCOM(HONS), AICWAQrt No. C/11, Gandhi Nagar,Kanke Road,Ranchi 834008

M/28420Shri Sunil Kumar Gupta,MCOM, AICWADinkar Nagar, PO- Hatia RailwayColony, Dist- RanchiRanchi 834003

M/28421Shri Rajesh Kumar Hotta,BE, AICWAAt- Usta Jagannath Pur,PO. Pattapur, Dist- GanjamGanjam 761013


M/28422Shri Akshya Kumar Swain,MCOM, AICWAC/o. T.V. Rao, B/2,Annapurna Quarters,R.C. Church Road,Berhampur 760001

M/28423Shri Nishi Kanta Mishra,BCOM(HONS), LLB,AICWAC/o. Uma Kanta MishraAt- Baseli Sahi, West GateJagannath Temple,Puri 752001

M/28424Shri Ravindra KrishnaraoKalkundri,BCOM, ACA, AICWABlock No. 2, Usha EnclaveNimbalkar Colony,Kolhapur 416003

M/28425Shri R. Kasilingam,BBA, MBA, AICWA114, Thilak Street, Mugappair,Chennai 600037

M/28426Shri A.S. Gurudath,BCOM, LLB, AICWA63/1, Ground Floor,Kanakapura Road,Facing Govindappa Road,Basavanagudi,Bangalore 560004

M/28427Shri Raju Shankar Dadage,MCOM, AICWAPEPL Residential Colony,AT/PO. Kurkumbh TAL :Daund, Pune 413802

M/28428Shri Chirag Kirtikant Sanghavi,BCOM, CMA(AUS), AICWA104, Jeevan Anand, M GCross Road No. 4, Patel Nagar,Kandivali (W),Mumbai 400067

M/28429Shri Sameer Sudarshan Gupta,BCOM, AICWAVijay Building, Plot No. 72,25th Road, First Floor,Sion (W), Mumbai 400022

M/28430Shri Samir Kumar Das,BSC, AICWA47 F, Prabhat ManmathaSarani, Kolkata 700078

M/28431Miss M. Regi Pushpa Rekha,BCOM, AICWANo. 815/6, M.T.H. Road,Padi, Chennai 600050

M/28432Shri Kiran Vijaykumar Bhat,BCOM, AICWAKiran Bhat, " Manager Costing& MIS", Natural Textiles Pvt.Ltd., # 5/2, 15th KM, HosurMain Road,P.O. Electronic City,Bangalore 560100

M/28433Shri Pratik MaheshkumarShah,MCOM, AICWA459 1A Matawalo Khancho,Verai Pada Ni Pole, Khadia,Ahmedabad 380001

M/28434Shri Jeetendar Kumar Manishi,BCOM, MBA, AICWADulhasti Power Station NHPCLtd., Chenab Nagar - II, Dist-Kishtwar Kishtwar 182206

M/28435Shri Raghu Nandan Mishra,MCOM, AICWADulhasti Power Station,NHPC Ltd., Chenab Nagar - II,Dist- Kishtwar,Kishtwar 182206

M/28436Shri Ankit Jain,BCOM(HONS), AICWAMarico Limited, C/o. M E T,6th Floor, Opp. LilavatiHospital, Bandra Reclamation,Bandra (W), Mumbai 400050

M/28437Shri Sunil Kumar Maheshwari,BCOM, AICWASammati Appartment, 3rdFloor, Flat-302, 98/3, D.P.J.M.Sarani, Bhadrakali, Hooghly,Bhadrakali 712232

M/28438Shri Kulwant Singh Rana,BCOM, AICWAHouse No. 57, Sector - 11,Panchkula 134112

M/28439Ms Anjna Sharma,BCOM, AICWAHouse No. 1-A, Mehar SinghColony, Tripuri,Patiala 147001

M/28440Shri Rajeev Kumar Patwari,BCOM, AICWARoyal Plaza, 3, Feeder Road,Flat-E, II Floor, Belgharia,Kolkata 700056

M/28441Shri Dipak Lal,MCOM, AICWA1, Kailash Bose Lane,Kalidas Apartment,Block- "A",1st Floor, Flat-102,Howrah 711101

M/28442Shri Debajyoti Barui,BCOM(HONS), AICWAFlat - Uttaran, HindusthanPark, 172, DiamondHarbour Road,Kolkata 700034


M/28443Shri Kapatkar Vishal Ravindra,BCOM, AICWA215/217, Navalkar Building, 1stFloor, Room No. 11, J.S.S.Road,Girgaon, Mumbai 400004

M/28444Shri Balaji Kodumuri,BCOM, AICWA57-3-38A,Yadarula Bazar, Patamata,Krishna Dist., Vijayawada,Vijayawada 520010

M/28445Shri Girija D.,BCOM, MBA, AICWANo. 7, 20th Cross, AkshayaNagar, Rammurthy Nagar,Bangalore 560016

M/28446Shri Ajeesh Kalluparambil Vasu,BSC, AICWAKalluparambil House,Madakkathanam - PO.,Ernakulam District,Ernakulam 686670

M/28447Shri Arun Nandlal Agrawal,BCOM, AICWAOpp. Kshirsagar Hospital,R.P. Road, Jalna, Jalna 431203

M/28448Shri Puneet Gupta,MCOM, AICWA8, DDA Staff Quarters, Ber Sarai,New Delhi 110016

M/28449Shri Israni Deepak Gopal,MCOM, AICWAD-13, Flat No. 3, D. S. Sumangal,Kasturba Housing Society,Vishranth-Wadi,Pune 411015

M/28450Shri Gaikwad Prasad Bandopant,BCOM, AICWA641, Kasba Peth, GuruchayaBuilding, Pune 411011


M/28451

Shri Tulsa Ram Chaudhary,MCOM, AICWA36 - A, Janata Colony,Pali-Marwar,Pali-Marwar 306401

M/28452Shri Pradeep Kumar Sharma,AICWAC-122, Telecom StaffQuarters, Vivek Vihar,New Delhi 110095

M/28453Shri Suman Kumar Verma,BCOM(HONS), AICWAR-Z-51, Maya Bhawan,Street No. 2, Main Sagarpur,

New Delhi 110046

M/28454Shri Mukesh Sachdeva,BCOM, AICWA7/9A Moti Nagar,

New Delhi 110015

M/28455

Miss Reshmi Bal,

MCOM, AICWA

7A, Nandaram Sen Street,

Kolkata 700005

M/28456

Shri Jayanta Bora,

BCOM, AICWA

Surajpur, NIPCCD Road,

(Near Khanapara Central

School), House No. 4,

Guwahati 781022

M/28457

Ms Sanchari Chatterjee,

BCOM, AICWA

17, Pratapaditya Place, 2nd

Floor, Kolkata 700026

M/28458

Shri Bhaskar Sharma,

BCOM(H), AICWA

41/1/1 Hazra Para Lane,

P.O. Bally, Howrah 711201


M/28459Shri Soumyaranjan Behera,BCOM(HONS), AICWAAt- Shashikadei Pur,PO. Karanjamal, Via-Naikanidehi Dist- Bhadrak,Karanjamal 756164

M/28460Shri Shubhro Michael Gomes,MCOM, AICWA10H/1B, Dover Terrace,Kolkata 700019

Admission to Associateshipon the Basis of MOU withIMA, USADate of Admission : 20

th

November 2009

C/28461Mr. Rajesh Joseph Williams,MCOM, MBA, CFM,CMA(USA), AICWAManager Accounts, FasaHusain Al-Yousifi & Sons Co.,P.O. Box 126,Safat - 13002, Kuwait

C/28462

Mr. Akhlaq Ahmed Tidiwala,

MCOM, ACA, CFM,

CMA(USA), AICWA

Manager - Financial Reporting,

Kuwait & Middle East Financial

Investment Co. (KMEFIC),

Bur Al Jassem, 10th Fl.,

Al Soor St.,

P.O. Box 819,

Safat 13009,

Kuwait

C/28463

Mr. Udoy Sankar Kamal

Chatterjee, BCOM, CFM,

CMA(USA), AICWA

Manager - Financial Accounting,

Kuwait & Middle East Financial

Investment Co. (KMEFIC),

Bur Al Jassem, 10th Fl.,

Al Soor St.,

P.O. Box 819,

Safat 13009, Kuwait

HEARTY CONGRATULATIONS

It is a matter of great honour for ICWAI that our Central Council Member,Shri A. N. Raman has been elected as the Vice President of SAFA. A CostAccountant and a Chartered Accountant, Shri. Raman has held many prestigiousglobal positions viz. member of the Financial and Management AccountingCommittee of IFAC for 1995-97, Advisor to the Institute of CertifiedManagement Accountants of Sri Lanka, member of the Review Group

constituted by the IFAC Board to review its deliverables of PAIB and has also been nominatedto IFAC PAIB for the term 2010. A frequent contributor of articles on cost management toleading business dailies and a consultant on training on cost management to various top rungcompanies, Shri Raman specializes in new trends in management accounting. We congratulatehim on his new responsibility and wish him all the best.


ANNOUNCEMENTESSAY COMPETITION

We are happy to announce that the essay competition 'Cost Management - Key to survival in current global meltdown' hasreceived a very good response, which would not have been possible but for the enthusiastic participation of our membersand students. We thank all contributors for their interest. The winners' names will be announced shortly and the awards willbe presented in the forthcoming National Award in Excellence in Cost Management to be held in March 2010 at New Delhi.

Buoyed by the heartening response of the essay competition, we propose to hold another essay competition.

The topic for members is

"ROLE OF COST AND MANAGEMENT ACCOUNTANTS IN CHANGED SCENARIO"

and the topic for students is

"CORPORATE SOCIAL RESPONSIBILITY- EXPECTATIONS FROM COST AND MANAGEMENT ACCOUNTANTS".

The competition is open for all Indian Nationals.

In the General category, Grad CWAs, members and students of ICWAI above 25 years are eligible to participate.

In the Students category, only students of ICWAI in the age group 17- 25 years are eligible to participate.

First prize: Rs.20,000/-, Second Prize: Rs.15,000/- and Third prize: Rs.10,000/- in each category.

Terms and conditions

1. Entries may be submitted by individuals or jointly to Deputy Director (Research & Journal), ICWAI, 12 Sudder Street,Kolkata-700016.

2. Essay can be coauthored by student of ICWAI or member of ICWAI or Grad CWA only.

3. Essay should be in English only.

4. The essay should be accompanied by a declaration by the participant of the essay to confirm that it is original and thatit has not been published earlier. Wherever required, reference must be quoted. This condition is mandatory.

5. Participants are required to clearly furnish their name, age, status- student/ member, address, email, phone number andone photograph along with the essay.

6. Participants shall be responsible for ensuring that all the information supplied by them regarding themselves is true,correct and complete. They shall keep the Institute informed of any change in information about them till the competitionis over.

7. Entries should not exceed 5000 words.

8. The matter should be type written on one side of the page in 1.5 space. Each page should be signed by the participant/s.

9. Last date of submission is 15th April, 2010.10. Entries received after the last date will not be considered.

11. Entries received shall be the property of ICWAI and may be used freely.

12. ICWAI shall not be liable for any loss or damage of any nature incurred by the participant as a result of their participationin the competition. Participants shall indemnify ICWAI against any damages howsoever arising from their participationin the competition.

13. Participants shall comply with all national and international laws pertaining to Intellectual Property Rights.

14. Any or all of the terms of competition may be changed by ICWAI at any time without prior notice.

15. ICWAI reserves the right to stop or suspend the competition without assigning any reasons.

16. The award winners will be intimated by email/ post.

17. In case of any dispute or difference of opinion, the decision of ICWAI will be final.

18. Prizes will be given at a function organized by ICWAI. The winners will be provided second class AC return train fare orair ticket at the discretion of ICWAI. Lodging and boarding will also be provided as per Institute's rules.


DEPUTY GENERAL MANAGERMARKET INTERMEDIARIES REGULATION AND SUPERVISION DEPARTMENT

SEBI/MIRSD/CRA/Cir-01/2010January 06, 2010

All Credit Rating Agencies Registered with SEBI

Dear Sirs,

Sub: Internal Audit for Credit Rating Agencies (CRAs)

It has been decided in consultation with the credit rating agencies (CRAs) that the audit envisaged underRegulation 22 of the SEBI (Credit Rating Regulations), 1999 shall include an internal audit to be under-taken in the following manner:

a. It shall be conducted on a half yearly basis.

b. It shall be conducted by Chartered Accountants, Company Secretaries or Cost and ManagementAccountants who are in practice and who do not have any conflict of interest with the CRA.

c. It shall cover all aspects of CRA operations and procedures, including investor grievance redressalmechanism, compliance with the requirements stipulated in the SEBI Act, Rules and Regulationsmade thereunder, and guidelines issued by SEBI from time to time.

d. The report shall state the methodology adopted, deficiencies observed, and consideration of re-sponse of the management on the deficiencies.

e. The report shall include a summary of operations and of the audit, covering the size of operations,number of transactions audited and the number of instances where violations / deviations wereobserved while making observations on the compliance of any regulatory requirement.

f. The report shall comment on the adequacy of systems adopted by the CRA for compliance with therequirements of regulations and guidelines issued by SEBI and investor grievance redressal.

2. The time schedule for the internal audit shall be as under:

a. The CRA shall receive the report of the internal audit within two months from the end of the half-year.

b. The Board of Directors of the CRA shall consider the report and take steps to rectify the deficien-cies, if any, and the CRA shall send an Action Taken Report to SEBI within next two months.

3. It is clarified that for the half-year October 2009 - March 2010, the CRA shall receive the report ofthe internal audit by May 31, 2010. Its Board of Directors shall consider the report and take appro-priate measures to rectify the deficiencies and the CRA shall send the Action Taken Report to SEBIby July 31, 2010.

4. This circular is issued in exercise of the powers conferred by Section 11 (1) of the Securities andExchange Board of India Act, 1992 read with the provisions of Regulations 19(1), 20 and 22 of theSEBI (Credit Rating Agencies) Regulations, 1999 to protect the interest of investors in securitiesand to promote the development of and to regulate the securities market.

Yours faithfully,

PRASANTA MAHAPATRA

Legal Updates


Ministry of Finance

Government of India, Ministry of Finance, (Department of Revenue)

Notification No. 27/2009- Central Excise (N.T.) New Delhi, dated the December 30, 2009.

G.S.R. (E).- In exercise of the powers conferred by sub-rules (1) and (2) of rule 3 of the Central Excise Rules, 2002, the CentralBoard of Excise and Customs hereby invests the Commissioner of Central Excise (Appeals) Mangalore with all the powers ofthe Commissioner of Central Excise (Appeals) Bangalore-II, for the purpose of deciding the following appeals, in accordancewith the provisions of section 35A of the Central Excise Act, 1944 (Act No. 1 of 1944), namely:-

Serial Number

Appeal Number (filed in the Office of Commissioner of Central Excise (Appeals) Bangalore-II

Respondent’s name

1 466/08-BII (D) M/s. Mangalore Ganesh Beedi Works, Kunigal

2 133/2009-BII (D) M/s. H.R. Johnson (I) Ltd, Kunigal

3 143/2009-BII (D) M/s. Big Bags (I) Pvt. Ltd., Peenya II Stage

4 22/2009-BII (D) M/s. BPL Ltd., Doddaballapur

[F.No. 208/14/2009- CX 6](V.P. Singh)

Under Secretary to the Government of India

Circular No. 911 /01 /2010-CXF.No.267/116/2009-CX8Government of India, Ministry of Finance, Department of Revenue (Central Board of Excise & Customs) New Delhi dated the14th January, 2010To,All Director Generals,All Chief Commissioners of Central Excise (including LTU),All Commissioners of Central Excise (including LTU).Sir/ Madam,Subject: Irregular availment of Cenvat credit on certain activities not amounting to manufacture-reg.Reference has been received from field formations stating that though certain activities including connectorising, testing,repacking and relabeling of feeder cables, cutting of HR/CR coils into sheets or slitting into strips do not amount tomanufacture, such processors are taking Cenvat credit and justifying their Cenvat availment on ground that they are payingduty on final products.2. The matter has been examined. As per the provisions of Rule 3 of the CENVAT Credit Rules, 2004, read with Rule 6, creditof duty paid on the inputs is allowed only if these inputs are used in the manufacture of a final product. The Board videcircular dated 26.09.07 issued from F.No.93/1/2005-CX3, had clarified that if the process does not amount to manufacture,duty is not required to be paid and hence no Cenvat credit of duty paid on inputs is admissible. Attention is also invited tothe provisions of Section 5B of the Central Excise Act, 1944, where an assessee, who has paid excise duty on a product underthe belief that the same is excisable, but subsequently the process of making the said product, is held by the Court as notamounting to manufacture, in such cases, the Central Government may issue an order for non-reversal of such credit in pastcases.3. In view of above, following instructions are issued:-(i) In cases where the process undertaken by an assessee indisputably does not amount to manufacture, the department

should inform the assessee about the correct legal position and advise him not to pay duty and not to avail credit oninputs.

(ii) If the assessee has already paid duty, and in a situation where there is no manufacture as held by the Courts subsequently,and facts of the case are covered by the provisions of Section 5B of the Central Excise Act, 1944, the assessee is at libertyto approach the Central Govt. for issue of appropriate notification for regularization of the Cenvat credit availed.

Legal Updates


4. Trade & Industry as well as field formations may be suitably informed.5. Receipt of this circular may kindly be acknowledged.6. Hindi version will follow.

Yours faithfully,(Amish Kumar Gupta)

OSD (CX-8)

Circular No. 01 /2010-Cus.F.NO.605/3/2009-DBKGovernment of India, Ministry of Finance, Department of Revenue, New Delhi, the 11th January 2010.ToAll Chief Commissioners of Customs/Central Excise/Customs & Central Excise.All Commissioners of Customs/Customs (P)/Customs &Central Excise/Central Excise.All Director Generals of CBEC,Chief Departmental Representative of Customs Excise & Service Tax Appellate Tribunal.Sir/Madam,Sub: Extension of Export Obligation period for the Advance License Holders who have imported raw sugar between21.9.2004 and 15.4.2008-regI am directed to invite your attention to the above-mentioned subject and to say that, a reference was received from theMinistry of Agriculture Food & Public Distribution to consider extension of export obligation period for those AdvanceLicense Holders who had imported raw sugar between 21.9.2004 and 15.4.2008 but had not yet fulfilled their export obligations.2. The reference was examined. The Cabinet Committee on Economic Affairs has decided that, the Advance Authorization

Holder will be permitted to exrcise either of the following options as he chooses in respect of pending unfulfilled exportobligations:-

(a) Further extension of time upto 31.12.2011 for export without payment of composition fees.OR

(b) Abolition of export obligation for past imports provided the importer pays the customs duties as applicable during therelevant period on normal imports, on the quantity of unfulfilled export obligation.

3. Accordingly, it is clarified that the Advance Authorization Holders who have imported raw sugar between 21.9.04 to15.4.08 shall be allowed to avail either of the options stated at para 2 above. Director General Foreign Trade has issuedPublic Notice No. 29/2009-14, dated 7.1.2010 in this regard.

4. These instructions may be brought to the notice of the trade / exporters by issuing suitable Trade / Public Notices.Suitable Standing orders/instructions may be issued for the guidance of the assessing officers. Difficulties faced, if any,in implementation of the Circular may please be brought to the notice of the Board at an early date.

Receipt of this Circular may kindly be acknowledged.Yours faithfully,

-Sd- (P.V.K. Rajasekhar)

OSD (Drawback)

Circular No. 120/01/2010-STF.No.354/268/2009-TRUGovernment of India, Ministry of Finance, Department of Revenue, (Tax Research Unit)New Delhi dated the 19th January, 2010.ToAll Chief Commissioners of Central Excise,All Chief Commissioners of Customs,All Chief Commissioners of Customs &Central Excise,Director General of Service Tax,All Commissioners of Service Tax,Commissioner (Service Tax), CBEC.Madam/Sir,Subject: Problems faced by exporters in availing refund of excess credit - regarding

Legal Updates


CENVAT Credit Rules, 2004 permit taking of credit of inputs and input services which are used for providing output servicesor output goods. In order to zero-rate the exports, Rule 5 of CENVAT Credit Rules, 2004 provides that such accumulatedcredit can be refunded to the exporter subject to stipulated conditions. Notification No. 5/2006-CE (NT) dated 14.03.2006provides the conditions, safeguards and limitations for obtaining refund of such credit.2. It has been represented by the exporters of services (mainly the call centres or the BPOs) that they are facing difficulties

in getting refund under the said notification. In order to ascertain the causes for such delay a number of meetings wereheld with the refund sanctioning authorities. During these meetings the officers pointed out the following legal/proceduralimpediments partly responsible for such delays:

(a) The major reason causing delay in granting refunds as well as rejecting the claims is that as per the wordings of thenotification, refund is permitted of duties/taxes paid only on such inputs/input services which are either used in themanufacture of export goods or used in providing the output services exported. As against this, the phrases used in theCENVAT Credit Rules permit credit of services used "whether directly or indirectly, in or in relation to the manufacture offinal product" or "for providing output service". The field formations tend to take the view that for eligibility of refund,the nexus between inputs or input services and the final goods/services has to be closer and more direct than that isrequired for taking credit. Many refund claims are being rejected on this ground.

(b) Even if a nexus is considered acceptable, the officers processing the refund claims find it difficult to co-relate goods orservices covered under a particular invoice with a specific consignment of export goods or specific instance of export ofservice.

(c) As per the notification, the claims are to be filed quarterly. For large exporters, the procurement of inputs/input servicesin a quarter is substantial resulting in each refund claim being accompanied with hundreds of invoices. Verification ofthese documents with corroborative documents showing exports (such as export invoices, bank certificates, shippingbills) consumes a long time;

(d) Though the notification prescribes that refund claims should be filed quarterly in a financial year, it is not clear whetherthe refund is eligible only of that credit which is accumulated during the said quarter or the accumulated credit of the pastperiod can also be refunded; and

(e) In certain cases, the invoices accompanying the refund claim are incomplete in as much as either the description ofservice or its classification is not mentioned. In some cases, even the name of the receiver of the inputs/input servicesis also not mentioned.

3. The matter has been examined. At the outset it is necessary to understand that the entire purpose of Notification No. 5/2006-CX (NT) is to refund the accumulated input credit to exporters and zero-rate the exports. Accumulated credit anddelayed sanction of refund causes cash flow problems for the exporters. Therefore, the sanctioning authorities aredirected to dispose of the refund claims expeditiously based on the following clarifications to the issues raised inparagraph 2 above.

3.1 Use of different phrases in rules and notification [para 2(a)]:

3.1.1 The primary objection indicated by the field formations is that the language of Notification No. 5/2006-CX (NT) permitsrefund only for such services that are used in providing output services. In other words, the view being taken is that to beeligible for refund, input services should be directly used in the output service exported. As regards the extent of nexusbetween the inputs/input services and the export goods/services, it must be borne in mind that the purpose is to refund thecredit that has already been taken. There cannot be different yardsticks for establishing the nexus for taking of credit and forrefund of credit. Even if different phrases are used under different rules of CENVAT Credit Rules, they have to be construedin a harmonious manner. To elaborate, the definition of input services for manufacturer of goods, as given in Rule 2 (l) (ii) ofCENVAT Credit Rules, 2004, includes within its ambit all services used "in or in relation to the manufacture of final products"and includes services used "directly or indirectly". Similarly Rule 2 (l) (i) of CENVAT Credit Rules also gives wide scope tothe input services for provider of output services by including in its ambit services "used....for providing an output service".Similar is the case for inputs.

3.1.2 Therefore, the phrase, "used in" mentioned in Notification No. 5/2006-CX (NT) to show the nexus also needs to beinterpreted in a harmonious manner. The following test can be used to see whether sufficient nexus exists. In case theabsence of such input/input service adversely impacts the quality and efficiency of the provision of service exported, itshould be considered as eligible input or input service. In the case of BPOs/call centres, the services directly relatable to their

Legal Updates


export business are renting of premises; right to use software; maintenance and repair of equipment; telecommunicationfacilities; etc. Further, in the instant example, services like outdoor catering or rent-a-cab for pick-up and dropping of itsemployees to office would also be eligible for credit on account of the fact that these offices run on 24 x 7 basis andtransportation and provision of food to the employees are necessary pre-requisites which the employer has to provide to itsemployees to ensure that output service is provided efficiently. Similarly, since BPOs/call centres require a large manpower,service tax paid on manpower recruitment agency would also be eligible both for taking the credit and the refund thereof. Onthe other hand, activities like event management, such as company-sponsored dinners/picnics/tours, flower arrangements,mandap keepers, hydrant sprinkler systems (that is, services which can be called as recreational or used for beautification ofpremises), rest houses etc. prima facie would not appear to impact the efficiency in providing the output services, unlessadequate justification is shown regarding their need.

3.2 One-to-one co-relation between inputs and outputs and scrutiny of voluminous record [para 2(b) & (c) above]:

3.2.1 Similar problem of co-relation and scrutiny of large number of documents was being faced in another scheme [NotificationNo. 41/2007-ST dated 06.10.2007] which grants refund of service tax paid on services used by an exporter after the goodshave been removed from the factory. In Budget 2009, the scheme was simplified by making a provision of self-certification[Notification No. 17/2009-ST] whereunder an exporter or his Chartered Accountant is required to certify the invoices aboutthe co-relation and the nexus between the inputs/input services and the exports. The exporters are also advised to providea duly certified list of invoices. The departmental officers are only required to make a basic scrutiny of the documents and,if found in order, sanction the refund within one month. The reports from the field show that this has improved the processof grant of refund considerably. It has, therefore, been decided that similar scheme should be followed for refund of CENVATcredit under notification No. 5/2006-CE (NT). The procedure prescribed herein should be followed in all cases including thepending claims with immediate effect.

3.2.2 Procedure: The exporter should, alongwith the refund claim, file a declaration containing the following details:

(Rs. in lakh)Details of goods/services exported on which refund of input credit is claimed

S. No.

Details of shipping bill/ Bill of export/export documents etc.

Details of input credit on which refund claimed

(1) (2) (3)

No. Date Date of export order

Goods/ service exported

Invoice No., date and Amount

Name of service provider/ supplier of goods

Service tax/ Central Excise Regn. No. of service provider/ supplier of goods

Details of service/ goods provided with classification under FA 1994/ Central Excise Tariff

Service tax/ Central Excise duty payable

Date and details of payment made to service provider

1. 2.

Documents attached to evidence the amount of service tax paid

Total export during the period for which refund is claimed

Total domestic clearances during the period for which refund is claimed

Total amount of input credit claimed as refund

(4) (5) (6) (7)

Legal Updates


The declaration should be certified by a person authorized by the Board of Directors (in the case of a limited company) or theproprietor/partner (in case of firms/partnerships) if the amount of refund claimed is less than Rs.5 lakh in a quarter. In casethe refund claim is in excess of Rs.5 lakh, the declaration should also be certified by the Chartered Accountant who audits theannual accounts of the exporter for the purposes of Companies Act, 1956 (1 of 1956) or the Income Tax Act, 1961 (43 of 1961),as the case may be.The Assistant or Deputy Commissioner may, after verification of the fact that the input credit has been correctly claimed,sanction the refund on the basis of the declaration. In case there is a doubt about the correctness of the claim of CENVATcredit on any service, the undisputed amount may be refunded and the balance claim may be decided after following thedispute settlement process.3.3 Quarterly refund claims [para 2(d) above]:As regards the quarterly filing of refund claims and its applicability, since no bar is provided in the notification, there shouldnot be any objection in allowing refund of credit of the past period in subsequent quarters. It is possible that during certainquarters, there may not be any exports and therefore the exporter does not file any claim. However, he receives inputs/inputservices during this period. To illustrate, an exporter may avail of Rs.1 crore as input credit in the April - June quarter.However, no exports may be made in this quarter, so no refund is claimed. The input credit is thus carried over to the July-September quarter, when exports of Rs.50 lakh and domestic clearances of Rs.25 lakh are made. The exporter should bepermitted a refund of Rs.66 lakh (as his export turnover is 66% of the total turnover in the quarter) from the Cenvat credit ofRs.1 crore availed in April-June quarter. The illustration prescribed under para 5 of the Appendix to the notification shouldbe viewed in this light. However, in case of service providers exporting 100% of their services, such disputes should notarise and refund of CENVAT credit, irrespective of when he has taken the credit, should be granted if otherwise in order.Such exporters may be asked to file a declaration to the effect that they are exporting 100% of their services, and, only if it isnoticed subsequently that the exporter had provided services domestically, the proportional refund to such extent can bedemanded from him.3.4 Incomplete invoices [para 2(e) above]:In case of incomplete invoices, the department should take a liberal view in view of various judicial pronouncements byCourts. It had earlier been prescribed in circular No.106/09/2008-ST dated 11.12.2008 that the invoices/challans/bills shouldbe complete in all respect. This circular was issued with reference to notification No.41/2007 dated 06.10.2007 as specificservices eligible for refund under the notification has been specified. Thus, a stricter requirement exists under the saidnotification for ascertaining the actual service which has been used in the export of goods. In the case of refund under Rule5, (i) so far as the nature of the service which has been received by the exporter can be ascertained; (ii) tax paid therein isclearly mentioned; and (iii) other details as required under rule 4(a) are mentioned, the refund should be allowed if the inputservice has a nexus with the service/goods exported as discussed earlier. In any case, the suggested Chartered Accountant'scertificate should clearly bring out the nature of the service and this will assist the officer in taking a decision.4. The instructions contained in this circular should be implemented with immediate effect and the pending claims may bedisposed of accordingly. It is expected that with the clarifications provided and liberalization of procedure, most of theimpediments to smooth and expeditious disposal of exporters' claims for refund of accumulated credit would be removed.The Board, therefore, expects that the concerned refund sanctioning authorities should decide all claims of exporters within30 days of their receipt as has been prescribed in notification No. 17/2009-ST. Any lapse in this regard would be viewedseriously. In case of any doubt, an immediate reference may be made to the Board.

Yours faithfully,(Roopam Kapoor)

Officer on Special Duty (TRU)Tel: 23095590

SEBIDEPUTY GENERAL MANAGERMarket Regulation Department - Division of PolicyEmail: [email protected]/MRD/DoP/SE/RTA/Cir-03/2010 January 07, 20101. The Executive Directors/ Managing Directorsof all Stock Exchanges2. Registrars to an Issue and Share Transfer AgentsDear Sir/Madam,Sub: PAN requirement for transmission of shares in physical form1. The Securities and Exchange Board of India (SEBI) vide circular ref. no. MRD/DoP/Cir-05/2007 dated April 27, 2007 made

PAN mandatory for all securities market transactions. Thereafter, vide circular no. MRD/DoP/ Cir- 05/2009 dated May 20,2009 it was clarified that for securities market transactions and off-market/ private transactions involving transfer of

Legal Updates


shares in physical form of listed companies, it shall be mandatory for the transferee(s) to furnish copy of PAN card to theCompany/ RTAs for registration of such transfer of shares.

2. Based on representations/ clarifications sought by market participants and in continuation to the aforesaid circulars, it ishereby clarified that it shall be mandatory to furnish a copy of PAN in the following cases -

2.1.Deletion of name of the deceased shareholder(s), where the shares are held in the name of two or more shareholders.2.2.Transmission of shares to the legal heir(s), where deceased shareholder was the sole holder of shares.2.3.Transposition of shares - when there is a change in the order of names in which physical shares are held jointly in the

names of two or more shareholders.3. Incase of mismatch in PAN card details as well as difference in maiden name and current name (in case of married women)

of the investors -3.1.The RTAs can collect the PAN card as submitted by the transferee(s). However, this would be subject to the RTAs

verifying the veracity of the claim of such transferee(s) by collecting sufficient documentary evidence in support of theidentity of the transferee(s) as provided for at para. 2 in the SEBI circular no. MRD/DoP/Dep/Cir-29/2004 dated August24, 2004 read with SEBI circular no. MRD/DoP/Cir-08/2007 dated June 25, 2007.

4. All Stock Exchanges are advised to:-4.1.implement the above by making necessary amendments to the byelaws and Listing Agreement, as applicable;4.2.bring the provisions of this circular to the notice of the listed companies for necessary compliance and also to put the

same on their website for easy access to the investors; and4.3.communicate to SEBI the status of the implementation of the provisions of this circular and the action taken in this regard

in the Monthly Development Report.5. All Registrars to an Issue and Share Transfer Agents are advised to:-5.1.take necessary steps to implement the above decision.5.2.disseminate the provisions of this circular on their website.6. This circular is issued in exercise of powers conferred under section 11(1) of the Securities and Exchange Board of India

Act, 1992, read with section 55A of Companies Act to protect interests of investors in securities and to promote thedevelopment of, and to regulate the securities market.

Yours faithfully,HARINI BALAJI

GENERAL MANAGERDERIVATIVES AND NEW PRODUCTS DEPARTMENTSEBI/DNPD/Cir- 50/2010 January 8, 2010SUB: Standardized lot size for derivative contracts on individual securitiesAvailable on www.sebi.nic.inDEPUTY GENERAL MANAGERINVESTMENT MANAGEMENT DEPARTMENTSEBI/IMD/CIR No.15/191378 /2010, January 18, 2010All Mutual Funds/Asset Management Companies (AMCs)and Association of Mutual Funds (AMFI)Dear Sir/Madam,Sub: Advertisement by mutual funds.1. Please refer to Regulation 30(1) and Schedule VI of SEBI (Mutual Funds) Regulations, 1996 on Advertisement Code.2. It is essential for the investors to be aware that the investments made in mutual funds are subjects to risk and that the

scheme related documents should be read before investing. Hence it was mandated that statements appearing in Clauses10, 13 and 14 of Schedule VI of SEBI (Mutual Funds) Regulations, 1996 on Advertisement Code should appear in alladvertisements. However, it is noted that the advertisements issued are generally lengthy and hence these disclosuresare not bought to the attention of the investors.

3. In order to make these statements more prominent, it is advised that the disclosures as stated in Clauses 10, 13 and 14 ofSchedule VI of SEBI (Mutual Funds) Regulations, 1996 on Advertisement Code shall be printed in bold.

4. All mutual funds shall comply with the above requirements in letter and spirit.5. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India

Act, 1992, read with the provisions of Regulation 77 of the SEBI (Mutual Funds) Regulations, 1996, to protect theinterests of investors in securities and to promote the development of, and to regulate the securities market.

Yours faithfully,Asha Shetty

Legal Updates


Reserve Bank India

RBI/2009-10/291DBOD. AML. No. 12841 /14.06.060/2009-10 January 21, 2010 Sub: List of Terrorist Individuals/ Organisations - under UNSCR 1267(1999) and 1822(2008) on Taliban/Al-Qaida OrganisationAvailable on www.rbi.orgRBI/2009-10/289RPCD.CO.RRB.BC.No.48 /03.05.50 /2009-10 January 18, 2010All Regional Rural BanksDear Sir,Computation of Net Demand and Time Liabilities (NDTL) for the purpose of Maintenance ofCRR/SLRIt has been observed that the Regional Rural Banks (RRBs) are not following a uniform practice in reckoning their liability inrespect of arrangements with correspondent banks (mainly sponsor banks) for remittance facilities. Under the arrangements,there is a transfer of funds by accepting bank to its correspondent bank and it is an obligation of the correspondent bank tohonour the instruments. However, such transfer of funds and obligation of correspondent bank to honour the instrumentsin no way absolve the primary liability of the accepting bank issuing drafts and interest/dividend warrants to its customers.It is, therefore, advised that all RRBs should reckon the liability in the following manner:i) When an RRB accepts funds from a client under its remittance facility scheme, it becomes a liability (Liabilities to Others)in its books. The liability of the RRB accepting funds will extinguish only when the correspondent bank honours the draftsissued by the accepting bank to its customers. As such, the balance amount in respect of the drafts issued by the RRB onits correspondent bank under the remittance facility scheme and remaining unpaid should be reflected in the RRB's books asan outside liability and the same should also be taken into account for computation of NDTL for CRR/SLR purpose.ii) The amount received by correspondent banks has to be shown as ' Liabilities to the Banking System ' by them and not as' Liabilities to Others ' and this liability could be netted off by the correspondent banks against their inter-bank assets.Likewise sums placed by banks issuing drafts/interest/duplicate warrants are to be treated as Assets within banking systemin their books and can be netted off from their inter-bank liabilities.2. Please acknowledge receipt to our Regional Office concerned.

Yours faithfully,(A.K.Pandey)

General Manager

RBI/2009-10/ 286 January 13, 2010A.P. (DIR Series) Circular No.25Sub; Purchase of Immovable Property in India by Persons of Indian Origin (PIOs) - Amendment of the definitionAvailable on www.rbi.org

RBI/2009-10/287 DBOD.BP.BC.No. 69 / 21.01.002/ 2009-10 January 13, 2010All Commercial Banks (excluding RRBs )Dear Sir,Retail Issue of Subordinated Debt for Raising Tier II CapitalAvailable on www.rbi.org

RBI /2009-10/274A.P. (DIR Series) Circular No. 21 December 29, 2009Sub; Advance Remittance for Import of Rough DiamondsAvailable on www.rbi.orgRBI/2009-10/277UBD.BPD.(PCB).Cir No. 39 /12.05.001/2009-10 December 30, 2009Sub; UCBs - Liquidity Risk Management System in Non Scheduled Banks - ReportingAvailable on www.rbi.org

Legal Updates


RBI/2009-10/273DPSS.CO.No.1357/02.23.02/ 2009-10 December 24, 2009The Chairman and Managing Director / Chief Executive OfficersAll Scheduled Commercial Banks including RRBs /Urban Co-operative Banks / State Co-operative Banks /District Central Co-operative BanksMadam/ Dear SirMobile Banking Transactions in India - Operative Guidelines for BanksA reference is invited to the guidelines appended to our circular no. RBI/2008-09/ 208, DPSS.CO.No.619 /02.23.02/ 2008-09dated October 08, 2008, on the captioned subject.2. Based on the requests received from the banks facilitating mobile banking transactions, the guidelines are modified as under:I. Transaction limit: In amendment of provisions of paragraph 8.1 of the above guidelines, banks are now permitted to offerthis service to their customers subject to a daily cap of Rs 50,000/- per customer for both funds transfer and transactionsinvolving purchase of goods/services. Presently, such transactions are subject to separate caps of Rs 5000/- and Rs 10000/-respectively.II. Technology and Security Standard: Transactions up to Rs 1000/- can be facilitated by banks without end-to-end encryption.The risk aspects involved in such transactions may be addressed by the banks through adequate security measures.3. Remittance of funds for disbursement in cash:In order to facilitate the use of mobile phones for remittance of cash, banks are permitted to provide fund transfer serviceswhich facilitate transfer of funds from the accounts of their customers for delivery in cash to the recipients. The disbursal offunds to recipients of such services can be facilitated at ATMs or through any agent(s)appointed by the bank as business correspondents. Such fund transfer service shall be provided by banks subject to thefollowing conditions:-I. The maximum value of such transfers shall be Rs 5000/- per transaction.II. Banks may place suitable cap on the velocity of such transactions, subject to a maximum value of Rs 25,000/- per month,per customer.III. The disbursal of funds at the agent/ATM shall be permitted only after identification of the recipient. In this connection,attention of banks is drawn to the provisions of the Notification dated November 12, 2009, issued by Government of India,under Prevention of Money Laundering Act, 2002, as amended from time to time.IV. Banks may carry out proper due diligence of the persons before appointing them as authorized agents for such services.V. Banks shall be responsible as principals for all the acts of omission or commission of their agents.4. The directive is issued under Section 18 of Payment and Settlement Systems Act, 2007, (Act 51 of 2007).

Yours faithfully,(G. Padmanabhan)

Chief General ManagerFinal Guidelines, December 24, 2009

RBI/2009-10/283DBOD.No.FSD.BC. 67 /24.01.001/2009-10 January 7, 2010All Scheduled Commercial Banks (excluding RRBs)Dear SirDisclosure in Balance Sheet - Bancassurance BusinessIn order to increase transparency in the financial statements of banks, Reserve Bank of India has from time to time issuedcirculars to banks requiring disclosures in the 'Notes to Accounts' to their Balance Sheet. These instructions were consolidatedin the Master Circular No.DBOD.BP.BC.NO.22/21.04.018/2009-10 dated July 1, 2009.2. As a further step in enhancing transparency, it has been decided that banks should disclose in the 'Notes to Accounts',from the year ending March 31, 2010, the details of fees/remuneration received in respect of the bancassurance businessundertaken by them.

Yours faithfully(P.Vijaya Bhaskar)

Chief General Manager-in-Charge

Legal Updates


Latest Arrivals -ACES(Automation of CentralExcise & Service Tax)R. Gopal*

*Practising Cost Accountant.

Central Board of Excise andCustoms introduced a newElectronic filing Web based

Centralized software application. Itreduces the paper work and improvestransparency, efficiency. Accessible atanytime (24X365) through the internet.Now all the Business houses includingSmall and Tiny Sectors have thisinternet connection which available atlowest Budgeted price now-a-days.Income Tax Department database is alsolinked with this for referring PANNumber.

Salient Features of this ACES

1. It can be accessed by ExistingAssesses, new assesses and Non-assesses.

2. Easy filing of Returns, refund claimsand Registration and Processing ofProvisional Assessment Request.

3. Separate Modules available forInformation of Credits and debits inCurrent A/c (Assessee's runningAccount) Cenvat Credit Account,

Status of Confirmed andUnconfirmed demands.

4. Availability of Automatic ReportGeneration Option.

5. Separate soft pages available forcase port folios, show cause notices,personal hearing memo,adjudication orders, Online filing ofappeals with commissioner(Appeals), Appellate orders.

6. Availability of both on-line and off-line facility.

7. In case of Refund, PAN isauthenticated with Income tax database.

8. On-line facility of processing andviewing Export related documents.

9. To help the accessing users, onlinetutorials and user-manual sheet isalso provided with this software.

10. Minimum requirements of computerto use this software is Pentium III,RAM 256 MB, Hard Disk 80GB andMS office 2003 version.

11. Separate Module is available forlarge tax payer unit (LTU) client. All

pending items of work will betransferred to the concerned LTUautomatically and intimation will besent.

Security Measures of ACES

**User name once selected cannot bechanged.

**But password can be changed atregular intervals

**Incorrect user name or passwordcannot be used for more than 5Consecutive time. If you repeat, youraccount will be blocked. To unblockyour account, contact Range officer.

**Your E-mail ID is mandatory. Ifchange in E mail ID inform to RangeOfficer.

**Temporary Personal IdentificationNumber (TPIN) consists of nine digitnumber with "t"

Other facilities

1. Availability of forms like A-1, A-2,ER-1, ER- 2, ST-1, ST-3A etc.,

2. On-line view of show cause noticeand order-in-original etc

Future Expectations; A separatesoft page is necessary for appointmentof cost accountants for audit u/s 14A& 14AA to the list of variousmanufacturers and their reportingpatterns. Provision for certification ofvalue of stock transfers by costaccountants needs to be made in ACES.More Amendments are required afterintroduction of GST.q

ANNUAL SEMINAR 2010 OF ASANSOLCHAPTER OF COST ACCOUNTANTS

Asansol Chapter of Cost Accountants is organising its Annual Seminar on Sunday,the 7th March 2010 at 9.30 a.m. at “DIPONI” , Bharati Bhawan, Burnpur on“Managing Growth in Turbulent Times”.

Taxation Updates


Regions & Chapters

CUTTACK BHUBANESWAR CHAPTER

CORPORATE BUSINESS WEEK

As per the notification of Ministryof Corporate Affairs, Government ofIndia and instruction of the Regionalcouncil, Cuttack Bhubaneswar Chapteralso celebrated the India CorporateWeek from 14.12.2009 to 21.12.2009. On20.12.2009 (Sunday), the chapter at itspremises organized an EssayCompetition amongst its students. 360students participated in the competition.The topics were as per the guidelinesof the Institute. Members of ManagingCommittee, Faculties and staffs of theChapter were also present on thisoccasion.

EIRC of ICWAI celebrated the IndiaCorporate Week from 14th fo 21stDecember, 2009. EIRC organized aprogramme on “Investors Awareness”at Kolkata. Shri Mritrynjay ACharjee,Sr. Manager, Balmer Lawrie & Co. Ltd.,Shri C.R.Chattopadhyay, formerChairman of EIRC and ShriR.P.Bhattacharya of United Bank ofIndia were the speakers. In his welcomeaddress, Chairman Shri Manas Kr.Thakur defined briefly about theobjective of India Corporate Week andimportance of the topic. Chief Guest ofthe programme Shri ChandanChoudhuri, Director (Finance), Bridgeand Roof Co. (I) Ltd. Inaugurated theprogramme by lighting the lamp. Theprogramme was attended by a goodnumber of members, students andcommon people. Shri SaswataDasgupta, RCM, was also present.

Programme on India Corporate Week atSiliguri was held on 19th December,2009. Shri Manas Kr. Thakur, Chairman,Shri Pallab Bhattacharya, Treasurer,

Shri Saswata Dasgupta, RCM, EIRC,Prof. D.P.Nandy, Chairman, Siliguri-Gangtok Chapter of Cost Accountants,other officials of the chapter and a goodnumber of people from Siliguriparticipated in the programme. Dr.Sanjiban Bandyopadhyaya, CCM andShri Pallab Bhattacharya delivered onInvestors Awareness, DTC, GST andsome regulatory measures underCompany Law.

EIRC of ICWAI, with Ranchi Chapter ofCost Accountants organised aworkshop on the topic “CorporateGovernance” under “India CorporateWeek” on 21st Dec’09. SriA.D.Wadhwa, Vice Chairman cumSecretary, EIRC of ICWAI introducedthe topic while Sri A.K.Sao, ViceChairman, RCCA welcomed theparticipants. Sri Ravi Bambha, Co.Secretary, MECON delivered the speechwhile Sri P.Chatterjee from S.N.SinhaManagement School summed up thesession. Sri S. K. Singh, Secretary,RCCA announced an essay competitionfrom the side of EIRC and RCCA on thetopic “India Inc. after five years” for thestudents. More than 150 participantsattended the programme.

Nasik Chapters of ICWAl’ hadcelebrated ‘India Corporate Week’during 14 - 21st December 2009.

On Monday, 14th Dec. 2009, at 6.00pm, Hon. Chief Guest, Mr. M. N.Brahmankar, President, Nasik Industries& Manufacturers Association inaugu-rated The “INDIA CORPORATEWEEK” by lighting the lamp. Mr. R.N.Bhave,, F.I.C.W.A., FICSI, F.C.A, aleading consultant in IFRS was theChairman of the programme. The

SILIGURI CHAPTER

programme was followed by Lecture on“Limited Liability Partnership” by Mr.V.S.Datey, Chairman, Nasik Chapter ofCost Accountants & Author of bookson Indirect Taxes. Mr.R.K.Deodhar, ViceChairman, Nasik - Ojhar Chapter of CostAccountants proposed the vote ofthanks. The programme was wellattended by a large number ofProfessionals, Industrialists & students.

A “Corporate Run & InvestorAwareness Programme” was organizedon 19th December 2009. Mr. H JAcharya, Commissioner of Income Tax,Nasik and Mrs. Gite, Principal of Govt.Girls High School, Nasik inauguratedCorporate Run. Many students,Corporate Members, Members ofICWAI & many other School Studentsparticipated with lot of enthusiasm.

The Second Event in the eveningon 19th December was “InvestorAwareness Programme”. Mr. R. K.Deodhar, Vice Chairman, Nasik Chapterof I.C.W.A.I. welcome the guests & theaudience. The function was inauguratedby Mrs. Devayani Pharande - (Dep.Mayor Nasik Municipal Corporation).The Guest Speakers for the InvestorAwareness Programme Mr. MukeshChothani & Mr. Prakash Mutha, (bothare eminent investment consultants)enlightened the Investors about therisks & rewards related with MutualFunds & Stock Market Investments &also solved the queries of “Aam Aadmi”on strategic investment in Stock Marketand how to manage Investments involatile Stock Market. Mr. AnuragPatwardhan, stressed the importanceofwatchout-investors.com’, a websitecreated by Government of India at freeof cost and urged investors to avail ofthis facility time and again while going

RANCHI CHAPTER

EIRC

NASIK-OJHAR CHAPTER


in for investment in shares and mutualfunds. The Programme was well attended.

As per the guidelines of MCA-Govt.of India, Pune Chapter of CostAccountants observed India CorporateWeek by organizing a lecture at PCCAPremises at Laxminagar Complex Puneon 18th Dec. 2009 on the subject ofCorporate Governance in the evening.Shri Amit Apte, Vice Chairman WIRCdelivered the lecture.

Present on the dais were Shri PramodDube, Chairman-PCCA, Shri AnantDhavale, Chairman-Students Co-ordination Committee and Shri AmitApte, Vice-Chairman, WIRC. ShriPramod Dube Chairman PCCAintroduced Shri Amit Apte to thegathering and felicitated him by offeringa bouquet and a memento.

Shri Amit Apte in his speechexplained the meaning of the phraseCorporate Governance and itsobjectives. He observed that on anaverage, businesses with superiorgovernance practices generate 20percent greater profits than othercompanies as per study based on 256companies conducted at the MIT SloanSchool of Management. He referred tothe Role & Responsibilities of BoD. Hereferred to the provisions for listedcompanies in India as per Clause 49 ofSEBI, Regulations, auditor’s certifi-cation, Risk Management etc. Membersand representatives from the Industryattended the programme in largenumber. Shri Anant Dhavale-Chairman,Students Co-ordination Committee gavevote of thanks.

Mettur-Salem Chapter of CostAccountants celebrated the ‘CorporateWeek’ on 18-12-09.

Shri M Gopalakrishnan, CentralCouncil Member and Guest of Honourof the celebration explained the role ofprofessionals including CostAccountants in assisting the Corporatein executing the activities under‘Corporate Social Responsibility’.

Chief Guest Dr Sarathy, Institute ofManagement Studies, PeriyarUniversity in his address cautioned thatall the Corporate Sectors should havethe social responsibility. They shouldnot function only with the target ofmaking profit.

There were 2 programmes organised onthe occasion of Corporate Week inPondicherry:

1. An interactive Session with theTrade & Industrial Associationsregarding l-’irst Discussion Paper onGST released by the EmpoweredCommittee of State FinanceMinisters. The Session was held atthe Durbar Hall of Annamalai Hotel,Pondicherry at on 21 /12/2009 andpresided over by the Chairman ofPondicherry Chapter and headed byMr. M Raje Shekar, theCommissioner of Commercial Taxes,Government of Pondicherry.

2. Another programme was organizedon the same day which was alsoattended by members of Cll,Chamber of Commerce, variousprofessional bodies like ICAI, ICSI,students and also corporates likeGAIL (India) Ltd , Servo PackagingPut Ltd etc. The function was presidedover by the Chairman of the ChapterMr. C Viswanathan who welcomed allthe guests and gathering.

The India Corporate Week celebratedon 16th Dec 2009 in the Joint meeting

METTUR SALEM CHAPTER

organized by Ministry of CompanyAffairs, Institute of Cost and WorksAccountants Works Accountants ofIndia-Coimbatore chapter &PSGRKrishnammal College, Coimbatore.

The programme was inaugurated byMr. P. Rajagopalan Registrar ofCompanies, Tamilnadu, Coimbatore,who briefed on the role of the MCA andhow such awareness will help buildingyouth of the society. Mr. Rajagopalanalso explained how the Corporate SocialResponsibility should come from theheart and the youth should strive to beNo.l in whatever field an individualchooses and excel. Mr. Rajagopalan alsostressed the role of MCA to take thelead in implementing CSR code for thecorporate sector aimed at inclusivegrowth of the society.

The Guest of Honour Mr.M.Gopalakrishnan, Central CouncilMember of the Institute of Cost andWorks Accountants of India, gave anote on the reasons behind celebratingthe India Corporate Week. .He alsopointed out that the corporate sectoraims at an inclusive growth, theawareness needs to be publicised to thestudents and general public through theevents where our professional institutewould also jointly take part.

The key note speaker Mr.R.Varadaraj, the Chief Operating Officer,of M/S Rajshree Sugars & ChemicalsLtd. Coimbatore narrated how thecorporates take up the role of CorporateSocial Responsibility.

The vote of thanks for theprogramme was given by Mrs. MeenaRamji, Secretary of ICWAI Coimbatorechapter, who thanked all the dignitarieson the dais for their valuable inputs andthe audience for their activeinvolvement. The progrmamme was wellattended by members of ICWAI

PONDICHERRY CHAPTER

COIMBATORE CHAPTER

Regions & Chapters

PUNE CHAPTER


Coimbatore chapter, faculty members ofPSGR Krishnammal College and a goodnumber of 225 students of the PSGRKrishnammal College.

As part of the India Corporate Weekcelebration, the following programmewas conducted on 19th December byCochin Chapter. 7.15am-Mass runflagged off by asst commissioner ofpolice shri.Baby Vinod at JawaharlalNehru.

A Seminar on corporate governancewas inaugurated by JusticeT.R.Ramachandran Nair, Judge, Hon’High Court of Kerala.Shri.NKrishnamurthy, official liquidator Keralapresented the subject and ShriM.Gopalakrishnan,CCM spoke onCorporate Social Responsibility.

An Essay competition for the citycollege students was also held and theprizes were distributed by the ChiefGuest of the Seminar.

As part of India Corporate WeekCelebrations a seminar was organisedon “Corporate Social Responsi-bility”on 21.12.2009. The meeting was presidedover by Mr.K.Krishnamurthy, GeneralManager (Finance), BHEL, Ranipet andmore than 70 corporate delegates wereparticipated.

The meeting was welcomed byMr.N.Babu, Chairman, and RanipetVellore Chapter of Cost Accountants.

Dr. I Ashok, Vice-Chairman, SIRC ofICWAI, Mr.M.Sethuraman, Patron,RVCCA, Mr.s.Ramachandran, Vice-Chairman, RVCCA and Mr. V.Sugavanesan, Treasurer, RVCCA werealso present on this occasion.

Mr. A.Om Prakash Immediate PastChairman, SIRC of ICWAI andMr.S.Kannan, Senior DGM (Finance),

BHEL, Ranipet spoke on this occasionabout the topic.

Mr.S.Sezlian, Secretary, RanipetVellore Chapter of Cost Accountantsproposed vote of thanks.

The Thrissur Chapter of the ICWAIorganised “India Corporate Week”celebrations on December 19, 2009. Thethree-hours programme was wellattended by corporate delegates,members, general public and studentsof ICWAI and other colleges. Twotechnical papers were presented at theseminar. The paper on “CostManagement-An Effective Tool forSurvival in Current Economic Scenario”,was presented by Sri A. P. Madhu,FICWA Chairman of Thrissur Chapter.The paper on “Corporate Governance”was presented by Sri James Jos, ACA.

Grand Finale - Corporate WeekCelebrations - 20 - 12- 09

As a grand finale to the ‘IndiaCorporate Week’ Celebrations, SIRC ofICWAI organised a Programme onSunday the 20th December, 2009 at itspremises.

Shri V.C. Davey, Registrar ofCompanies Tamil Nadu Circle, Chennaiwas the Chief Guest for the programme.Earlier Shri A. Om Prakash, Chairman,Professional Development welcomedthe distinguished audience. Shri M.Gopalakrishnan, Central CouncilMember - ICWAI who was thecoordinator for the Southern Region forthe Corporate Week Celebrationshighlighted the various activities thattook place in a week and he also informedthe members that ICWAI has broughtout 5 Exclusive Publications during thecelebrations and the same was releasedby the Chief Guest.

Shri A.V.N.S. Nageswara Rao

THRISSUR CHAPTER

BANGALORE CHAPTER

Regions & Chapters

Chairman, SIRC explained the differentinitiatives taken by the Regional Councilto spread the message of CorporateWeek Celebrations jointly organised bythe Ministry of Corporate Affairs andICWAI. Shri A.N. Raman, Central CouncilMember - ICWAI stressed the need forthe Corporate Social Responsibility. TheChief Guest in his address appreciated theefforts of ICWAI in joining hands withthe MCA to make the celebrations, agrand success.

The Bangalore Chapter has conductedIndia Corporate Week on Wednesday,the 16th December 2009 at HotelChalukya in a grand manner.

Shri G.N. Venkataraman, President-ICWAI, addressed the participantsexplaining the background of thisprogramme. He said that there is a needto provide positive reinforcement to thecontribution of the Corporate Sector forthe economic and social developmentof the country. In this context, theMinistry of Corporate Affairs hasproposed celebration of IndiaCorporate Week during third week ofDecember every year. This year, this isbeing celebrated from 14th to 19thDecember 2009 throughout the country.

Shri B.N. Harish, Registrar ofCompanies-Karnataka, Ministry ofCorporate Affairs, also addressed theparticipants. In his speech, Shri Harishexplained the salient features ofCorporate Governance which helps thecommon man for economic and socialdevelopment of the country.

Shri A. Om Prakash, Chairman-PD,SIRC, gave an over-view on CorporateSocial Responsibility and InclusiveGrowth.

There was a live interaction from theparticipants with the officials of ROC atthe end of the programme.

COCHIN CHAPTER

RANIPET-VELLORE CHAPTER


REGIONS & CHAPTERS NEWS

31st Eastern India Regional CostConference

The 31st Eastern India Regional CostConference, organized by RourkelaChapter of Cost Accountants andEastern India Regional Council ofICWAI, was held on 5th & 6th December2009. The Chief Guest, Sri S. N. Singh,MD, RSP inaugurated the function bylighting the sacred lamp. In his inauguraladdress Mr. Singh gave emphasis onbecoming competitive to both internaland external competitors in the field ofsteel business. Earlier in his welcomeaddress, Sri V. Nandagopal, ED (F&A),RSP & Chairman, Rourkela Chapter ofICWAI welcomed all the dignitaries,delegates and students of RourkelaChapter of ICWAI to the seminar. SriM. K. Sahoo, Secretary of RourkelaChapter presented the Secretary’s reportand Sri M. K. Thakur, President, EIRCspoke about the relevance of the topicof the seminar in present time. Sri B. C.Mohapatra, Vice Chairman of RourkelaChapter proposed a vote of thanks.

First Technical Session - Threats& Opportunities - Indian Economy inthe present economic Scenario.

At the outset, Sri R. K. Gupta, Ex-ED(F), SAIL & Ex-Director (Finance),KIO Co. Ltd, the Chairman of thesession, introduced the topic and itsrelevance in the present time. Heemphasized ‘change’ as the need of theday to cope up with the changingeconomic scenario. Then he handedover the session to the speaker of thesession, Prof. Brajraj Mohanty, StrategicMangement, XIMB.

Second Technical Session :Leadership is the key to the progress inthe New Millennium

Sri A. K. Mishra, GM (P&A), SAIL,RSP, the chairman of the session,introduced the topic and its relevancein the present time. Er. Ajit Mahapatra,CMD, Kalinga Engineers Ltd., thespeaker of the session, vividlyelaborated the qualities of a good leaderand an enterprising leader. His

EASTERN REGION presentation along with good practicalexamples made the session valuable.

Third Technical Session : Values &Valuations

Sri C R Chattopadhaya, Ex-Chairman, EIRC, the chairman of thesession, introduced the topic and itsrelevance in the present time. Prof.Banikanta Mishra, Professor XavierInstitute of Management, Bhubaneswar,the speaker of the session, discussedthe pricing rationality of IPO. He alsodeliberated on the Book Value & FairValue of an asset.

Fourth Technical Session : eprocurement at RSP - A success story

Sri S S Mohanty, ED (P&A) SAIL,RSP, the chairman of the session,introduced the topic and its relevancein the present time. Sri IndranilChoudhry of mjunction, the speaker ofthe session, described the variousadvantages of e-procurement. As asuccess story implementation of e-procurement at Rourkela Steel Plant wasdiscussed.

1. Modular Program for Finalstudents and pass out students ofJune, 2009 term examination.The Chapter conducted a series of

programs during 7th October, 2009 to14th October, 2009.a) A session on "Personality

Development" taken by Dr. RKSMangesh Dash, Professor (HRM),IMIS, Bhubaneswar.

b) A session on "Cost Audit" takenby CMA. S.S.Sonthalia, one of theleading Practitioners in Orissa andPast Chairman of the Chapter andEIRC of ICWAI.

c) A session on "Direct Tax" taken byCA. P.K.Bal, Practitioner and one ofthe leading tax Practitioner in Orissa.

d) A session on "InterviewTechnique" taken by Shri A.K.Panigrahi, Ex-Director HR, NALCO.

e) A session on "Practical Aspect ofCMA" taken by CMA. B. P.Mohapatra, CFO, CESU, Orissa and

Past Chairman of EIRC of ICWAI andthe Chapter.

f) A session on "Company Incorpo-ration" taken by Shri J.Mishra.

g) A session on "Corporate Gover-nance" taken by CS. K. N. Ravindra.comp secy NALCO

EIRC organized a programme on“Corporate Governance” at Haldia on18.12.2009 to observe India CorporateWeek. The programme was held atIndian Oil Management AcademyAuditorium, Haldia Township inpresence of Shri A.K.Roy, ExecutiveDirector, IOCL, Shri S.Dasgupta, Dy.General Manager (Finance), IOCL andother staff and officers of IOCL, HaldiaRefinery. Members and students ofICWAI along with local people ofHaldia were also present. Dr. SanjibanBandyopadhyaya, CCM, and ShriPallab Bhattacharya, Treasurer, EIRCdelivered on the subject. A brief ideaon DTC, GST and recent amendmentsin Company Law was also given by thespeakers. Shri Manas Kr. Thakur,Chairman, EIRC, Shri SaswataDasgupta, RCM and Shri PrabirBanerjee, Professional DevelopmentOfficer of EIRC were also present.

Ranchi Chapter of Cost Accountantsorganized its Annual seminar on “GST”on 8th November at Ranchi. Sri B. M.Sharma, Vice Presidentof ICWAI was theChief Guest and Sri R. Mishra, Director(F), HEC, Sri P. G. Nandy, Director (F)-BCCL and Sri Manas Thakur-Chairman–EIRC of ICWAI, Sri A. L. Thakkar,Chairman, Ranchi Chapter were alsopresent. Sri S. K. Singh, Secretary, RanchiChapter conducted the inaugural session.

Technical session was conductedby Sri A. D. Wadhwa, Vice Chairman ofEIRC of ICWAI and addressed by Sri B.M. Sharma, Sri V. S. Datey, noted taxauthor and Dr Gaurav Vallabh fromXLRI/MDI.

Shri A.D. Wadhwa, Vice Chairmancum Secretary, EIRC of ICWAIpresented a talk on “Accounting

Regions & Chapters

CUTTACK BHUBANESWAR CHAPTER

HALDIA CHAPTER

RANCHI CHAPTER


Services” and our profession on12.10.2009 at Ranchi. It has attended bymembers of Rotary Club and studentsof different colleges.Seminar at Guwahati

On 1st November, 2009 a seminar onDirect Tax Code was organized atGuwahati. Shri Manas Kr. Thakur,Chairman, EIRC was present in theprogramme. Shri Mrityunjay Acharya,Head of Corporate Tax, Balmer Lawrie& Co. Ltd., Spoke on the topic. ShriPranab Gogoi, Minister of Law, Govt. ofAssam, Shri T. M. Das, Director ofIncome Tax, North Eastern Region, ShriP. K. Sharma, Central Council Member(Govt. Nominee), ICWAI and ShriNathulal Jain, Chairman, GuwahatiChapter of Cost Accountants were alsopresent in the programme. The seminarwas attended by a good number ofparticipants from different areas ofAssam.Seminar on DTC at EIRC

A seminar on Direct Tax Code wasalso organized jointly with Income TaxDepartment, MoF, Govt. of India at EIRCPremises on 6th November, 2009. ShriGautam Chaudhuri, Chief Commissionerof Income Tax, Kolkata was the ChiefGuest of the programme. Shri Manas Kr.Thakur, Chairman, EIRC welcomed theparticipants while Dr. SanjibanBandyopadhyaya, CCM defined theDirect Tax Code. Shri MrityunjayAcharjee, Sr. Manager Taxation, BalmerLawrie & Co. Ltd., Shri P. K. Roy andShri N. P. Sinha, both Commissioner ofIncome Tax spoke on the subject. Apartfrom the members of the ICWAI, a goodnumber of officers from Income TaxDeptt. also attended the programme.Seminar on GST at Jamshedpur

EIRC of ICWAI organized a seminaron Goods and Service Tax atJamshedpur jointly with SinghbhumChamber of Commerce on 17th

November, 2009. Shri Rakesh Singh, arenowned practicing member spoke onthe subject. Commissioner of CentralExcise Shri Jha graced the chair ofGuestin-Chief from EIRC Shri Manas Kr.Thakur, Chairman, Shri A. D. Wadhwa,Vice-Chairman and Secretary, Shri PallabBhattacharya, Treasurer and Shri K. K.

ASANSOL CHAPTER

Sarkar, Past Chairman and member werepresent. Office bearers and members ofSinghbhum Chamber enjoyed theprogram and appreciated the valueaddition.

3rd Quarterly Meet of Asansol Chapterof Cost Accountants

The 3rd Quarterly Meet of AsansolChapter of Cost Accountants for theyear 2009-10 was held on 5th December,2009 at 6.30 p.m. at the Chapter Officeon ‘Resurgence of West Bengal’.

At the outset, Chairman SriM.Viswanathan welcomed the membersto the 3rd Quarterly Meet and introducedProf. Sreemanta Sarkar, Head ofDepartment of Economics, B.C. College,Asansol and Co-ordinatcr for BBA &BCA courses.

Sri Sarkar very eloquentlypresented the various steps taken byGovernment of West Bengal in recenttimes for improving industrialization,Health care. Education andinfrastructure facilities with statistics.Many questions raised by the memberswere clarified.

Sri Utpal Majumdar, Vice Chairmanof the Chapter gave vote of thanks.

Sri Subrata Banerjee, Secretary ofthe Chapter anchored the programme.

Evening Talk on "Economic Crisis" on30.12.2009

As a part of the continuingeducation program and taking in toconsideration the present economicscenario, the Chapter organized anEvening Talk on "Economic Crisis" on30th December, 2009 (Wednesday) at6.00 P.M at its Conference hall. Dr.D.V.Ramana, Professor XIMB,Bhubaneswar and Dr. A.K.Mohanty,Professor, Utkal University, Vanibihar,Bhubaneswar were the Speakers on theocassion. CMA. S.Mohapatra,Chairman of the Chapter also addressedthe audience. CMA. B.K.Pattnaik,Chairman PD Committee coordinatedthe entire program. Both speakers madea good presentation with example andenlightened the gathering with theirflamboyant speech. The members

participated in the discussion activelyand very enthusiastically and the talkwas very interactive. More than 100members had attended the programme.The vote of thanks was extended bythe Chairman, PD Committee.

Dhanbad Sindri Chapter of CostAccountants organized an evening talkshow on “EVA” on 11

th Dec’09 for its

members at the Chapter building. SriA.D. Wadhwa, Vice Chairman, EIRC ofICWAI was invited as speaker. Sri R. B.Roy, Chairman of the chapter with SriB.M. Jha, Secretary of the Chapterwelcomed the speaker and Sri K.C.Pratihar, special invitee with bouquet offlowers. Sri A. K. Nath introduced thetopic. Later Sri A.D. Wadhwa discussedthe topic in details.

In fact Economic Value Addition hasbecome a tool of judging the real returnof the company to its investors.

Sri P.K. Das proposed vote ofthanks.

Members in large number werepresent on the occasion.

Regions & Chapters

DHANBAD-SINDRI CHAPTER

WESTERN REGION

KALYAN AMBERNATH CHAPTERCareer Counselling Programmes

Chapter organized Career CounselingProgrammee on 15th Dec and 20th Dec2009 at FRIENDZ CLASSES, Ulhasnaagr-4.for benefit of students appearing forXll examination to be held in March 2010.Mr. G. B. Shamnani, Chairman of chapterexplained to students about value andimportance of course, also gave detailsof subjects. He explained to studentsabout advantage of joining thisprofessional course at under graduatelevel.Mr. Raju P. Chhatpar, ExecutiveSecretary explained admissionprocedure for joining FoundationCourse.Students listened with attentionand raised questions, which wereanswered to their satisfaction. Lecture wasfollowed by question answer session.

Lecture on ‘Roadmap to GST’Nasik Ojhar Chapter of Cost

NASIK -OJHAR CHAPTER


Accountants and Nasik Chapter ofWIRC of ICSI had arranged a lecture on‘Roadmap to GST’ by Mr. V. S. Datey,Author of Indirect Taxes and Chairmanof Nasik Ojhar Chapter of CostAccountants and Nasik Chapter ofWIRC of ICSI, on 16th Nov. 2009.

Mr. Datey explained the back-ground of proposed GST. He elaboratedoutline of GST on the basis of firstdiscussion paper released byempowered committee on 10thNovember, 2009. Mr. Datey stated thatthough many issues are not year clear,basic direction of proposed GST is clear.He stated that concept of IGST isexcellent and will help in smoothimplementation of GST.

Mr. R. K. Deodhar, Vice Chairman,Nasik Ojhar Chapter of CostAccountants welcomed the audience.Mrs. Shilpa Parkhi, Cost Accountantand Company Secretary proposed voteof thanks.

Response to the lecture wasoverwhelming and tax practitioners,students and practicing membersattended the lecture in large numbers.

NORTHERN REGION

KANPUR CHAPTER

keen interest and raised no. of querieswhich were answered by the Speaker.

A programme of training of Officers/Supervisory staff of Ordinance Factoriesfrom different parts of all over thecountry was organized in OrdinanceFactories, Kanpur from 12.11.2009 to20.11.2009. The programme wasorganised by Kanpur Chapter.Seminar on Goods and Service Tax

Kanpur Chapter of Cost Accountantsorganized Seminar on Goods andService Tax on 06

th December, 2009 at

Kanpur. Sri Suraj Prakash, D.G.M. (F),BHEL & Chairman, Noida Chapter ofCost Accountants was speaker of theSeminar. The programme wasinaugurated with the lighting of lampby Dr. R. C. Katiyar, Director, CSJMUniversity, Kanpur. Sri A. K. Bhargava,Chairman Kanpur Chapter of CostAccountants welcomed the Speaker andparticipants. Sri A. K. Awasthi, AdvisorKanpur Chapter of Cost Accountantsdelivered theme address.

Sri Suraj Prakash gave a detailed andcomprehensive presentation onproposed GST in India and its impacton Industry which is stated to be rolledout on 1

st April, 2010. His presentation

included analysis of Taxation Powersbetween State and Centre Governmentas per Indian Constitution, recommen-dations of Kelker Task Force Committee,progress made so far in terms of GSTimplementation, Global perspectives ofGoods and Service Tax.

The programme has been given widecoverage in media with 5 newspaperscovering the event.

Seminar on Goods and Service TaxKanpur Chapter of Cost Accountants

organized Seminar on Goods and ServiceTax on 06

th December, 2009. Sri Suraj

Prakash, D.G.M. (F), BHEL & Chairman,Noida Chapter of Cost Accountants wasspeaker of the Seminar. The programmewas inaugurated with the lighting of lampby Dr. R. C. Katiyar, Director, CSJMUniversity, Kanpur. Sri A. K. Bhargava,Chairman Kanpur Chapter of CostAccountants welcomed the Speaker andparticipants. Sri A. K. Awasthi, AdvisorKanpur Chapter of Cost Accountantsdelivered theme address.

Sri Suraj Prakash gave a detailed andcomprehensive presentation onproposed GST in India and its impacton Industry which is stated to be rolledout on 1

st April, 2010. The presentation

concluded with positive impact of GSTon industry. Large no. of membersparticipated in the programme and took

SOUTHERN REGION

BANGALORE CHAPTER

A) Meeting with the Hon'ble ChiefMinister of Karnataka:Shri G.N. Venkataraman, President-

ICWAI, along with the Chairman andmembers of the Managing Committeeof Bangalore Chapter, Chairman-PD andSecretary of SIRC, met the Hon'ble ChiefMinister of Karnataka, Shri B.S.Yeddyurappa, on 15th October 2009 atVidhana Soudha and thanked him forgiving an opportunity for the Cost

Accountants to conduct VAT Audit ofCorporates by suitable amendment toSection 34(2) of K-VAT Rules. OurPresident also requested the Hon'bleChief Minister to give properrecognition to Cost Accountants in theproposed Goods and Services Tax(GST). On this occasion, a Cheque forRs. 1,01,000/- was handed-over to theHon'ble Chief Minister towards FloodRelief Fund.B) Professional Development Meet:

1) A Professional DevelopmentMeet was held on 19th September 2009wherein Shri Nikhil Gavankar, VicePresident-Accounting Services, M/sGoldman Sachs Services Pvt. Ltd.,Bangalore, spoke on Randomness andFinancial Markets. A large number ofour members attended this programmeand had an interaction with the speakerat the end of his lecture. The meetingwas presided over by Shri M.R. KrishnaMurthy, Chairman of BangaloreChapter. The meeting ended with a voteof thanks by Shri A.V. Jayarama,Treasurer of the Chapter.

2) A Professional DevelopmentMeet was held on 30th September 2009wherein Shri G. Jagannathan, ChiefExecutive Officer, M/s AARM SupplyChain Solutions, Bangalore, spoke onReducing Liabilities by Post SalesManagement. The speaker gavenumber of live examples which hasresulted in reduction of liability to theorganisation by adopting Post SalesManagement. The meeting waspresided over by Shri M.R. KrishnaMurthy, Chairman of BangaloreChapter. The meeting ended with a voteof thanks by Shri A.V. Jayarama,Treasurer of the Chapter.C) Inauguration of October 2009Semester Oral Coaching Classes:

The inaugural function of October2009 Semester Oral Coaching Classeswas held on 15th October 2009. Shri G.N.Venkataraman, President-ICWAI,inaugurated the Oral Coaching Classes.The President advised the students toput their best efforts to come outsuccessfully as Cost and ManagementAccountants within a short span oftime. Endowment prizes were distributed

Regions & Chapters


Regions & Chapters

on this occasion to the meritoriousstudents. The function was presidedover by Shri M.R. Krishna Murthy,Chairman of the Chapter. ShriDattatreya, Vice Chairman andChairman-Coaching gave a report on thecoaching activities. The meeting endedwith a vote of thanks by Shri N. ShivaKumar, Secretary of the Chapter.D) Silver Jubilee Annual Comme-moration Lecture:

The 21st Silver Jubilee AnnualCommemoration Lecture was deliveredby Prof. Lakshman Ravendra Watawala,President, The Institute of CertifiedManagement Accountants of Sri Lanka,on 27th November 2009 at Hotel Atria.The topic of the lecture was BestPractices In Corporate Governance. ShriG.N. Venkataraman, President-ICWAI,addressed our members on thisoccasion. Shri A. Om Prakash, Chairman-PD, SIRC of ICWAI, gave an over-viewof the programme. The programme waspresided over by Shri M.R. KrishnaMurthy, Chairman of the Chapter.E) Dr. H.R. Subramanya MemorialLecture:

The Fourth Dr. H.R. SubramanyaMemorial Lecture was delivered by Dr.B. Venkatachalam, Managing Director,M/s Hexagon Capital Markets Ltd., atHotel Chalukya, on 6th December 2009.The topic of the lecture was ChangingRole of Cmas in Shaping The IndianEconomy. Shri G.N. Venkataraman,President of our Institute addressed ourmembers. The programme was presidedover by Shri M.R. Krishna Murthy,Chairman of our Chapter.

CIMA’s Global Head-Alliance andLearning Partnership-24.11.2009.

Ms. K. Peng Tam, Global Head-alliance and learning partnership(London) and Ms. Althea Paul,Southern representatives of CIMAaddressed members and students aboutthe MOU CIMA with ICWAI. They alsoexplained in detail about the coursecontents, job prospects of the CIMAcourse. Members and studentsattended in large number and also hada very detailed interaction with thespeakers. The programme was held on

HYDERABAD CHAPTER

Chapter at Hotel Atria, on 27*November 2009. Shri M.R. KrishnaMurthy, Chairman of the Chapterwelcomed the delegates and theSpeakers. The seminar was inauguratedby Shri G.N. Venkataraman, President-ICWAI. The topics covered are Goodsand Service Tax (GST), Value Added Tax(VAT), CENVAT and Service Tax. Thespeakers on the topics were Messrs.Naveen Purohit, Chartered Accountant,Raghavendra, Chartered Accountant, R.Vasudevan, Superintendent of CentralExcise, Dr. B.V. Murali Krishna,Dy.Commissioner - Commercial Taxesand Shri Balamurugan, JointCommissioner, Central Excise. Therewas a Panel Discussion at the end ofthe programme. More than 150delegates participated in this seminar.

On 29th Nov 2009 Mysore Chapterof ICWAI, conducted the Seminar onLarge Number of delegates participatedin the Seminar. The Seminar wasinaugurated by Sri. B. Rajaraman,President (Operations), Falcon Tyres,Mysore.

Sri. Sridhar K. Chari, AssociateProfessor, SDM Institute of Manage-ment Development, Mysore Resourceperson for “World Class Approach toProfit Management” and Sri.D.V.Manohar, Director - Tax, DeloitteHaskins & Sells, Bangalore was theResource Person for “Tax Deduction atSource”. Delegates were very muchimpressed the seminar.President visit to Mysore Chapter:

On 28-11-2009, President, Sri.G.N.Venkataraman visited Mysore Chapterand interacted with members. On thisoccasion Sri.A. Om Prakash, ImmediatePast Chairman, SIRC of ICWAI, Dr.I.Ashok, Vice Chairman, SIRC of ICWAIand Sri. B.R. Prabhakar, Secretary, SIRCof ICWAI were present and addressedthe Members. While interacting withmembers, President elaboratelyexplained the latest developments, ofour Institute and opportunitiesenhanced for Practicing members, likeVAT Audit in Karnataka.Sri.K. GururajaRao, Chairman, Mysore Chapterthanked President for the visit.q

THRISSUR CHAPTER

24.11.2009 at Chapter premises.Shri A.V.N.S. Nageswara Rao, Chairman-SIRC of ICWAI also addressed thegathering on that occasion. The meetingconcluded with a vote of thanks byShri A. S. Nageswar Rao, Secretary, HCCA.Stress Management-24.10.2009

Chapter had conducted on eveningtalk on ‘Stress Management’ on 24th

October, 2009 at Chapter premises. SriK. Panduranga Rao, Group Head-HR&Admn. IVRCL, speaker deliveredan overview on the programme andexplained at length on StressManagement. Sri S. P. Sarma, ViceChairman, HCCA gave a welcomeaddress and Sri Ch. Venkateswarlu,Chairman-Professional Developmentintroduced the speaker of the day tothe members. The programmeconcluded with vote of thanks by SriCh. Venkateswarlu, Chairman-Professional Development Committee.

All Kerala Cost Convention, 2009Thrissur Chapter of ICWAI hosted

an All Kerala Cost Convention, 2009,on November 20 & 21, 2Q09. The themeof the Convention was CostManagement - Key to PerformanceExcellence. The programme wasinaugurated by Sri. K.S. Srinivas, IAS,Additional Secretary, IndustriesDepartment, Government of Kerala.Sri.G.N. Venkataraman, President,ICWAI, presided over the meeting. Sri.A.S. Durgaprasad, CCM, Sri. M.Gopalakrishnan, CCM, Sri. N.P.Sukumaran, past President, ICWAI, Sri.A.N.S. Nageswara Rao, Chairman, SIRCof ICWAI, Sarva Sri. A. Om Prakash andSunil Chacko, past Chairmen of SIRC ofICWAI, and Chairmen and officials ofthe other Chapters in Kerala, wereamong the other dignitaries present onthe occasion.

Shri Biju Raphael, Vice-Chairman,proposed vote of thanks. A Souvenirwas brought out to commemorate theoccasion. Sri G. N. Venkataraman,President, ICWAI, released the Souvenir.Seminar on Indirect Taxes - An Update:

A seminar on Indirect Taxes - AnUpdate was organized by Bangalore

MYSORE CHAPTER

The Management Accountant · 2012-12-22 · by Dr. K. V. Ramana Murthy & Dr. K. V. Achalapathi 134...

Documents

Transcript of The Management Accountant · 2012-12-22 · by Dr. K. V. Ramana Murthy & Dr. K. V. Achalapathi 134...