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ICWAI objects to draft guidelines proposals
November, 15th 2006
Cost accounting record rules

Members of Institute of Cost and Works Accountants of India have objected to key proposals outlined in a recent set of draft guidelines on Cost Accounting Record Rules (CARR) and cost audit under the Companies Act, 1956.

The draft refers to the list of industries in which CARRs have been notified under section 209 (1(d) of the Companies Act, which is proposed to be reviewed. It also indicates that many industries (to which CARRs are applicable now) are currently witnessing competition.

The ICWAI members' objection specifically stems from the following portion of the draft: "Unless otherwise required by the company management, there is no requirement to prescribe cost accounting records by such industries/activities by statute. Therefore, this list should be carefully reviewed and where CARRs are not relevant any more, they should be repealed."

Mr Manas Kumar Thakur, Secretary and Treasurer, ICWAI, Eastern India Regional Council, said the list encompasses a number of industries, most of which will be impacted by the proposed policy guidelines. "This will have a serious effect on our profession. There is no reason to assume that cost audit has become irrelevant in this competitive scenario," he told newspersons.

The Institute would like to draw attention to the fact that as many as 49 industries come under the purview of cost audit. It has also referred to the Dr J.J. Irani committee's report, which, inter alia, had noted that cost audit should be encouraged.

The points raised by the draft guidelines relate to increasing competition and free market conditions, which enable managements to keep costs under control for better productivity, profitability and market share. Companies should have the freedom to adopt measures that would help them keep costs under limits, it has been argued.

ICWAI members are of the view that cost accounting and cost audit would not present a threat to trade secrets. Instead, cost audit plays a role in improving performance in a competitive atmosphere.

Mr Thakur further referred to recommendations made not long ago by the committee on subordinate legislation. The committee (headed by Mr N.N. Krishnadas, Member of Parliament) apparently regretted that even 38 years after enactment of provisions empowering the Government to prescribe CARRs, these have not been framed to cover all major industries and projects.

The slow pace of framing rules negates the very purpose of the important provision of the legislation passed by the Parliament, ICWAI members feel. A host of services - banking, insurance, health, education, hospitality and the like - have lately attained prime stature. However, the law does not require formulation of CARRs for all service industries, it is pointed out.

 
 
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