Skip to main content

Corporate Governance and Audit in India - BS

The article is published in Business Standard June 02, 2008 by Ashish Bhattacharya

"Cost audit, which has not received due attention has the potential to support enterprise governance. In fact investors should insist for cost audit. In India cost audit exists for over four decades. But, it has not been used to its full potential. Till date, only 44 industries/products have been covered by Cost Accounting Record Rules, and cost audit orders have been issued in about 2,500 cases, covering about 2,000 companies.

In the era of price control and administered interventions, attested cost structure had a major role to play and hence the cost audit emphasised on this aspect. The cost audit had to play the key role of verifying and validating the cost figures in select industries before they were submitted to the government.

In the changed economic environment the emphasis should shift to efficiency review. The Ministry of Corporate Affairs has constituted an Expert Group to review the existing Cost Accounting Standards and Cost Audit Report Rules. Hopefully the cost audit in its new avatar will be effective in supporting the enterprise governance.

Some argue that cost audit has become irrelevant in a market economy. They are not correct. It is true that government control is unwarranted in a market economy. But, in a market economy, regulators are required to frame right regulations in the interest of the industry as a whole and also in the interest of the consumers.

Cost audit, supported by cost accounting standards, can provide relevant and credible cost and revenue data to regulators to support their decisions. Moreover, cost audit can provide relevant reports to the board of directors to strengthen its oversight function. Therefore, in a market economy, cost audit with changed emphasis on efficiency is as relevant as it was in a controlled economy.

In an environment where ‘stakeholder theory' of corporate governance is still rhetoric and management focus is on capital market, cost audit will help to protect the interest of stakeholders including investors. It will also help optimal use of national resources"

Find out more on Business Today on article written by Ashish Bhattacharya


Santosh Puthran

Add to Technorati Favorites

Do you like to be updated in Accountancy ?

Subscribe to Management Accountant by Email


Subscribe in a reader

SAP Store, UK

Visit MA Stores ? You will find something you are looking for ....

Management Accountant Store, US - Powered by Amazon
Management Aaccountant Store, UK Stores - Powered by Amazon, UK

You may also like to read
  1. Accountancy Profession in India 22-May-08
  2. Cost Audit Awareness in India 21-Jan-07
  3. Membership of Accounting Body - Value Proposition 20-Mar-08
  4. Tax Cut - A simple lesson in Economics - 25-Dec-07
  5. Understanding three stages of Change
  6. Management Accounting Guidelines of CMA Canada
  7. Activity Based Costing
  8. Full Cost Accounting
  9. Do Markets have a DNA
  10. Home
Subscribe to RSS Feeds and be up-to-date
  1. Management Accountant
  2. Accountancy News
  3. My Favorite Blogs that I track
  4. SAP Jobs & Opportunities


Popular posts from this blog

Learning Curve Theory

Learning Curve Theory is concerned with the idea that when a new job, process or activity commences for the first time it is likely that the workforce involved will not achieve maximum efficiency immediately. Repetition of the task is likely to make the people more confident and knowledgeable and will eventually result in a more efficient and rapid operation. Eventually the learning process will stop after continually repeating the job. As a consequence the time to complete a task will initially decline and then stabilise once efficient working is achieved. The cumulative average time per unit is assumed to decrease by a constant percentage every time that output doubles. Cumulative average time refers to the average time per unit for all units produced so far, from and including the first one made.

Major areas within management accounting where learning curve theory is likely to have consequences and suggest potential limitations of this theory.

Areas of consequence:
A Standard Costing

Resistence to Change - Approaches of Kotter and Schlesinger

The Six (6) Change Approaches of Kotter and Schlesinger is a model to prevent, decrease or minimize resistance to change in organizations.
According to Kotter and Schlesinger (1979), there are four reasons that certain people are resisting change: Parochial self-interest (some people are concerned with the implication of the change for themselves ad how it may effect their own interests, rather than considering the effects for the success of the business)Misunderstanding(communication problems; inadequate information)Low tolerance to change (certain people are very keen on security and stability in their work)Different assessments of the situation (some employees may disagree on the reasons for the change and on the advantages and disadvantages of the change process) Kotter and Schlesinger set out the following six (6) change approaches to deal with this resistance to change: Education and Communication - Where there is a lack…

Throughput Accounting

Throughput accounting (TA) is an alternative to cost accounting proposed by Eliyahu M. Goldratt. It is not based on Standard Costing or Activity Based Costing (ABC). Throughput Accounting is not costing and it does not allocate costs to products and services. It can be viewed as business intelligence for profit maximization. Conceptually throughput accounting seeks to increase the velocity at which products move through an organization by eliminiating bottlenecks within the organization.

Cost (or Management) accounting is an organization's internal method used to measure efficiency. Since no one outside the organization uses such internal accounts for investment or other decisions, any methods that an organization finds helpful can be used.

Throughput accounting improves profit performance with better management decisions by using measurements that more closely reflect the effect of decisions on three critical monetary variables (throughput, inventory, and operating expense — defin…