Wage Mechanism for Sustainable Business

March 8th, 2012

This is a post by Grad.CMA Vinayak Sahni.

There are many things that have already been discussed in this forum as to what should be included in performance Appraisal report…my aim is to explore new unconventional areas which are overlooked by many stakeholders but still are very vital for sustainable business modal.

I was thinking about unconventional reporting from past few days…I have come out with three areas ….tday My theme is ” wage mechanism for sustainable business”.

wage mechanism for sustainable business


Today there are many companies who on their social responsibility front score higher grades by highlighting what they have contributed towards community in which they are operating but there is also a flipside to these overly highlighted gestures by the corporates.

Now , There could be case that organisations are following certain unethical practices that help them to get compensation for the cost incurred on csr.One of such practice could be in form of curtailed labor wages .., As lower labor contributes to largest chunk of working population in India , this practice could be very fruitful. Even by curtailing Rs 10 per labor the Corporate house can be greatly compensated for the cost incurred on social responsibility practices initiated by it .

Objective :

To find out discrepancies in Social responsibility reporting by highlighting hidden unethical practices initiated by corporate to make themselves compensated for the cost incurred on CSR practices , so as to make their financial position even as before.


1) Evaluation of Social responsibilty Practices through effective quantitative terms would show the real stand & cost incurred by organisations on CSR.

2) To show weather the organization is worthy of earning credits on CSR.

3) To change Mindset of Corporate with respect to treatment of lower labor. It attempts to device Industry best practices in managing labor force.

4) Shift of Ideology in setting up Labor wage unrestricted by Minimum wage as set by Govt. & laying down greater emphasis on “Inflation Adjusted Real wages “.

5) To reduce labor unrest & dealing with other labor issues .

Discussion is restricted to following class : Lower Labor & Wage earners , weather permanent or temporary.

During discussion Middle /Lower Management shows permanent staff just above labor.eg Superviser etc

Evidence & checklist:

To gather knowledge on the following…

1) The comparison of wage with minimum wages as per labor law .

What is the percentage of Actual wage with respect to Minimum wage as per Indian Labor Law.

Eg. In India : Labour A earns Rs1000/Month, Min Wage set by Govt. Of India is Rs800/month…

Percentage = Actual wages / Min wage =(1000/800)*100 = 125% , which means in India labor earns 1.25 times more than the min wage set by govt…Now this ratio has to be compared with labor practices across the globe.

2) To check weather the Wage is Inflation Adjusted , Computation of wages In real Value.

Inflation Increased by 10% , but salary remains the same = 1000/Month , so real wage would be Rs909/Month Approx..

3) To check Promotion Benefits given to lower labor & making effective comparison of promotion policies devised for Middle/Lower Management personnels .


Middle/lower Management Promotion policy.. Level A to Level B , Duration 3 years , Salary Increased 50%.

Lower Labor Promotion Policy …Level A to Level B, Duration 5 Years & salary Increased 20%.

Promotion policy should be checked in respect to Time , increament & credits earned to get promotion.

4) To check real cost of Social Responsibility .

eg. Organization spends 10cr annually on education for community, Tax benefits it received = 2cr . Labor employed = 5000 workers, Standard Industry salary for similar work 2000/Month , Actually paid by Company Policy = 1000/Month.

Saving per month = (2000-1000)*5000 = 50L . so real cost of CSR would be 10-2-.5=8.5 cr.

5) To check whose the real benefitter of Social practices by Organisation & to check weather the workers who are not receiving benefit are also compensated to make there stand equal to beneficiaries.

eg , suppose the organization has the policy to fund child education of labor employed , & it costs abt 200/child/month for education …Labour A who earns 1000/ month has 2 children so in this case his deemed monthly pay would be 200+200+1000 =1400. Labor B who also earns 1000/month is childless, so consequently his deemed pay would be less , so what is role played by company to satify such labour force who are not at receiving end.

6) What is the daily work policy towards lower labor in comparison to middle level.

Middle/lower Management is entitled to 1 hr lunch break, labor force entitled to 20 mins break.

7) Evaluation of Other facilities like transportation , meals etc. provided to labor force.

8) Comparison of Wages & other policies of daily labor & permanent labor. Whats the policy for those daily wagers who have served the organization for very long & what is the backup provided to them in case there services are terminated by the company ??…

Many Might doubt My intentions to Include this aspect to Performance Appraisal report by saying that it wont be good if we tell the company about its own unethical practices , To answer that Lemme clarify that by study on this aspect in its entirety , we can help the company in devising such policies which would be beneficial for both labor & company in maintaining its Image .Guidance could be given to organisations as to how they can keep their social Responsibility cost at minimum & still achieve greater social goals . Spending more does not always mean greater benefit . There could be a case where the company spends greater than other organisations but still do not achieve desired social goals. It’s aim is to bring about uniformity & evenness in Labor -Organization practices , so as to avoid situations like labor unrest etc , which would further ensure smooth greater productivity.

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The Importance of Capital Theory

January 13th, 2012



Robert P. Murphy

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Robert Murphy is an adjunct scholar of the Mises Institute, where he teaches at the Mises Academy. He runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to “Man, Economy, and State with Power and Market,” the “Human Action” Study Guide, The Politically Incorrect Guide to the Great Depression and the New Deal, and his newest book, Lessons for the Young Economist. Send him mail.

As I have read countless analysts, including professional economists, offer “solutions” to the financial crisis, I have become more convinced of the importance of capital theory. You see this with the dichotomy people keep drawing between the financial markets and the “real economy,” a distinction that is useful for some purposes but which in this context often reinforces the idea that the stock market is really just a casino.

When the Paulson Plan was first being debated, even sharp, free-market thinkers who are otherwise very solid were recommending instead that “bank recapitalization” was the way to fix things. But if our troubles stem from a diversion of real resources into the housing sector — if too many and too big homes were built at the expense of other possible uses for those inputs — then government financial transfers per se won’t do anything except redistribute the losses.

Once we understand how our present problems are due to a Fed-induced distortion in the capital structure, it becomes clear that the worst recommendation is for the Fed to cut interest rates and pump in ever more “liquidity.” It was artificially cheap credit that fueled the housing boom in the first place. Greenspan brought the federal funds target rate down to a ridiculous 1 percent — meaning the interest rate was actually negative, once we adjust for price inflation — and held it there for a year. He did this in order to (apparently) obviate the need for a harsh recession in the “real economy” after the dot-com crash. But in fact he sowed the seeds for our present crisis. If Bernanke continues shoveling in hundreds of billions to needy bankers, five years from now Americans (and the rest of the world) may look back fondly on the present the way the 2001 downturn now seems like a minor inconvenience.

Krugman and Cowen Ridicule the Austrian “Hangover” Theory

Rather than start from scratch, in this article I will illustrate the importance of a solid theory of capital by showing how very intelligent economists — one of whom is now a Nobel laureate — make elementary mistakes in their critique of Austrian business cycle theory (ABCT). For the sake of brevity, I won’t recapitulate the theory here; in the links above you can see my own watered-down expositions, or go here for Roger Garrison’s amazing PowerPoint presentation, or here for a more comprehensive introduction. Now then, assuming the reader understands the basic Austrian story, let us quote Tyler Cowen’s recent discussion of Paul Krugman’s Slate critique of ABCT:

[Paul Krugman:] Here’s the problem: As a matter of simple arithmetic, total spending in the economy is necessarily equal to total income (every sale is also a purchase, and vice versa). So if people decide to spend less on investment goods, doesn’t that mean that they must be deciding to spend more on consumption goods — implying that an investment slump should always be accompanied by a corresponding consumption boom? And if so why should there be a rise in unemployment?

[Tyler Cowen commenting on the above quote:] But I think the point is more effective in reverse. Why should the boom be a boom in the first place? The shift toward investment goods, and thus away from consumption goods production, should mean falling real wages, not rising real wages. In other words, the Austrian theory doesn’t generate the very high degree of comovement found in the data.

These are actually two separate points; i.e., Cowen did more than simply “reverse” the argument, he slightly changed the point. To help the reader understand my response, let me paraphrase (what I take to be) Krugman’s and Cowen’s similar (but distinct) objections to the Mises-Hayek theory.

The basic Austrian story is that during the artificial boom, workers’ labor and other resources get channeled into investment projects that aren’t compatible with the overall level of real savings. Sooner or later, reality rears its ugly head, and the unsustainable projects have to be abandoned before completion. Entrepreneurs realize they were horribly mistaken during the boom, everybody feels poorer and slashes consumption, and many workers get thrown out of jobs until the production structure can be reconfigured in light of the revelation.

Now then, Krugman is saying that this story doesn’t make sense. We can stipulate that certain producers (such as builders) expanded too aggressively in a boom, and then they suddenly discover that their customers no longer want to buy their products (urban office buildings, let’s say). But, Krugman explains, people in the economy have to spend their income somewhere. If the income isn’t going towards $10 million office buildings, it must be getting channeled into movie tickets, or electric generators, or copies of Peter Schiff’s book. So it’s not at all obvious, Krugman concludes, why massive unemployment should accompany the onset of the “hangover” from the credit binge. The jobs destroyed in the “higher-order” (in Austrian jargon) stages ought to be offset by newly created jobs in the lower-order stages.

Tyler Cowen’s objection is similar, but as I said, it’s not quite the same. Cowen wants to know why people should feel rich during the Fed-induced boom, as the Austrians allege. In fact, because workers and materials are shifted into producing higher-order goods like tractor trailers and orange cones for road crews, the fact of scarcity implies that there should be fewer consumption goods (TVs, steak dinners, sports cars) being cranked out when the boom first sets in. If fewer consumption goods are being produced, then per capita real income has to fall, which again is the opposite of what the Austrians claim.

I have done my best to paraphrase what I understand to be Krugman’s and Cowen’s points. I must confess that even while typing out the above, the non sequitur in each objection jumped out at me. For Krugman, his argument relies on a static conception of income and spending. Just using that accounting tautology — without indexing for time — Krugman could also argue that real income can never change in an economy, even if the government announced that the most productive 10% of workers in every firm would be shot. (After all, total income would still equal total spending.)

As for Cowen, he seems to be assuming that “real income” is equivalent to “real consumption.” I don’t know what to say except, “No it isn’t.” If a worker gets a job in a silver mine and gets paid in ounces of silver that he stores in his basement, he can have very high “real wages” even if his consumption is very low. In fairness, Cowen fired off the above on his blog, not in a refereed journal article; I would hate to see a collection of the dumbest things I’ve ever said on my blog. So let’s assume that he meant to say that ABCT makes us expect real consumption (not income) to fall during the boom period. Cowen’s point is that this doesn’t match with the data. During the boom, we see increased investment in new (and more “roundabout” in Austrian lingo) projects, and we see workers getting paid more and hence buying more consumer goods. But shouldn’t this be impossible, Cowen asks, if, as the Austrians claim, during the boom, resources are pulled away from consumption goods (like iPhones) and instead are devoted to the production of investment goods (like tractor trailers)? In the next section we’ll see what Cowen is overlooking.

A Sushi Model of Capital Consumption

Above I’ve pointed out some of the basic flaws in Krugman’s and Cowen’s arguments. (Other Austrians have responded to Krugman in the past. See the replies of Garrison and Cochran.) More generally, they are ignoring the all-important notion of capital consumption. This is why one needs to understand capital theory, as pioneered by Carl Menger and Eugen von Böhm-Bawerk, in order to make sense of what the heck just happened in the US economy. Any talking head on CNBC who doesn’t understand capital consumption is going to give horrible policy recommendations.

When thinking about this article, I went back and forth. I have decided that I should spell out a “model” of intermediate complexity, because if I simplify it too much, it might not really click with the reader, but if I go overboard with it, no one in his right mind would finish the article. Without further ado, let’s examine a hypothetical island economy composed of 100 people, where the only consumption good is rolls of sushi.

The island starts in an initial equilibrium that is indefinitely sustainable. Every day, 25 people row boats out into the water and use nets to catch fish. Another 25 of the islanders go into the paddies to gather rice. Yet another 25 people take rice and fish (collected during the previous day, of course) and make tantalizing sushi rolls. Finally, the remaining 25 of the islanders devote their days to upkeep of the boats and nets. In this way, every day there are a total of (let us say) 500 sushi rolls produced, allowing each islander to eat 5 sushi rolls per day, day in and day out. Not a bad life, really, especially when you consider the ocean view and the absence of Jim Cramer.

But alas, one day Paul Krugman washes onto the beach. After being revived, he surveys the humble economy and starts advising the islanders on how to raise their standard of living to American levels. He shows them the outboard motor (still full of gas) from his shipwreck, and they are intrigued. Being untrained in economics, they find his arguments irresistible and agree to follow his recommendations.

Therefore, the original, sustainable deployment of island workers is altered. Under Krugman’s plan for prosperity, 30 islanders take the boats (one with a motor) and nets out to catch fish. Another 30 gather rice from the paddies. A third 30 use the fish and rice to make sushi rolls. In a new twist, 5 of the islanders scour the island for materials necessary to maintain the motor; after all, every day it burns gasoline, and its oil gets dirtier. But of course, all of this only leaves 5 islanders remaining to maintain the boats and nets, which they continue to do every day. (If the reader is curious, Krugman doesn’t work in sushi production. He spends his days in a hammock, penning essays that blame the islanders’ poverty on the stinginess of the coconut trees.)

For a few months, the islanders are convinced that the pale-faced Nobel laureate is a genius. Every day, 606 sushi rolls are produced, meaning that everyone (including Krugman) gets to eat 6 rolls per day, instead of the 5 rolls per day to which they had been accustomed. The islanders believe this increase is due to use of the motor, but really it’s mostly due to the rearrangement of tasks. Before, only 25 people were devoted to fishing, rice collection, and sushi preparation. But now, 30 people are devoted to each of these areas. So even without the motor, total daily output of sushi would have increased by 20%, assuming the islanders were equally good at the various jobs, and that there were plenty of fish and rice provided by nature. (In fact, the contribution of the motor was really only the extra 6 rolls necessary to feed Krugman.)

But alas, eventually the reduction in boat and net maintenance begins to affect output. With only 5 islanders devoted to this task, instead of the original 25, something has to give. The nets become more and more frayed over time, and the boats develop small leaks. This means that the 30 fishermen don’t return each day with as many fish, because their equipment isn’t as good as it used to be. The 30 islanders making sushi are then in a fix, because they now have an imbalance between rice and fish. They start cheating, by putting in smaller pieces of fish into each roll. The islanders continue to get 6 rolls per day, but now each roll has less fish in it. The islanders are furious — except for those who are repulsed by the idea of ingesting raw fish.

Being a trained economist, Krugman knows what to do. He suggests that 2 of the rice workers and 2 of the sushi rollers switch over to help the fishermen. Now with 34 workers, the islanders are able to catch almost as many fish per day as they were in the previous months, even though they are now using tattered nets and dilapidated boats. Krugman — being very sharp with numbers — moved just enough workers so that the fish caught by the 34 islanders matches up perfectly with the rice picked by the remaining 28 islanders who go to the paddies every day. With this amount of fish and rice, the 28 workers in the rolling occupation are able to produce 556 sushi rolls per day. This allows everyone to consume about 5 and a half rolls per day, with a bonus roll left over for Krugman.

The islanders are a bit concerned. When they first followed Krugman’s advice, their consumption jumped from 5 rolls to 6 per day. Then when things seemed to be all screwed up, Krugman managed to fix the worst of the discoordination, but still, consumption fell to 5.5 rolls per day. Krugman reminded them that 5.5 was better than 5. He finally got the crowd to disperse by talking about “Cobb-Douglas production functions” and drawing IS-LM curves in the sand.

Because this is a family-friendly website, we will stop our story here. Needless to say, at some point the 5 islanders devoted to net and boat production will decide that they have to cut their losses. Rather than trying to maintain the original fleet of boats and original collection of nets with only 5 workers instead of 25, they will instead focus their efforts on the best 20% of the boats and nets, and keep them in great shape. At that point, it will be physically impossible for the islanders to prop up their daily sushi output. In order just to return to their original, sustainable level of 5 sushi rolls per person per day, the islanders will need to suffer a period of privation where many of them are devoted to net and boat production. (We can only hope that Professor Krugman has been rescued by the Swedes by this time.)

The 5 people looking for ways to synthesize gasoline and motor oil will have to abandon that task, because it was never appropriate for the islanders’ primitive capital structure. The islanders will of course discard the motor brought to the island by Krugman once it runs out of gas.

Finally, we predict that during the period of transition, some islanders will have nothing to do. After all, there will already be the maximum needed for catching fish with the usable boats and nets, and there will already be the corresponding number of islanders devoted to rice collection and sushi rolling, given the small daily catch of fish. There would be no point in adding extra islanders to boat and net production, because then they would end up building more than could be sustained in the long run. Hence, the elders rotate 10 people every day, who are allowed to goof off. They could of course go try to catch fish with their bare hands, or go gather rice that would just be eaten in piles by itself, but everyone decides that this is a waste of time. Given the realities, it is decided that during the transition, 10 people get the day off, even though everyone is hungry. That is just how bad Krugman’s advice was.


As our simple story illustrates, in modern economies workers use capital goods to augment their labor as they transform nature’s gifts into consumption goods. Because of the time structure of production, it is possible to temporarily boost everyone’s consumption, but only at the expense of maintaining the capital goods (the boats and nets), which are thus “consumed.” At some point, engineering reality sets in, and no “stimulus” policies can prevent a sharp drop in consumption.

Although the story of the sushi economy was simplistic, I hope that it illustrated essential features of a boom-bust cycle. When the islanders first implement Krugman’s advice, they all feel richer. After all, they really are eating 6 rolls per day instead of 5; there is no arguing with results. And they would have no reason to suspect an unsustainable restructuring, either: after all, they are using a new outboard motor. This is analogous to the arguments about the “New Economy” during the dot-com boom, or the confidence placed in the new financial instruments used during the housing boom. During every boom, people can always come up with reasons that “this time it’s different.”

In the sushi economy, this initial prosperity was illusory. Although there were indeed benefits from the new technology, the bulk of the extra consumption was being financed through capital consumption, i.e., by allowing the boats and nets to deteriorate. This is analogous to Americans’ consuming a massive amount of imported consumption goods during the housing boom, because they erroneously thought their rising house values would more than compensate. In other words, had Americans realized that their real-estate holdings would plummet in a few years, they would not have consumed nearly as much. They were consuming capital without realizing it, just as the islanders didn’t realize that their extra sushi consumption was largely financed through neglect of their boats and nets.

Note too that this aspect of the story answers Cowen’s objection: people consume more during the boom — i.e., the villagers eat more sushi per day — even while new, unsustainable investment projects are started. (In our sushi economy, the unsustainable project was looking for gasoline for the newfangled outboard motor.) Cowen is right that a sustainable lengthening of the capital structure initially requires a reduction in consumption; what happens is investors abstain and plow their savings into the new projects. But during a central-bank-induced boom, there hasn’t been real savings to fund the new investments. That’s why the boom is unsustainable, but it also explains why consumption increases at the same time. It’s true that this is impossible in the long run, but in the short run it is possible to increase investment in new projects, and to increase consumption at the same time. What you do is neglect maintenance on critical intermediate goods, just as our islanders were able to pull off the feat for a few months. A modern economy is very complex, and it can take a few years for an unsustainable structure to become recognized as such.

Finally, our sushi economy showed why unemployment increases during the retrenchment. People don’t like to work; they would rather lounge around. In order for it be worthwhile to give up leisure, the payoffs from labor have to be high enough. During the “recession” period, when the islanders had to cut way back on output from the fish, rice, and sushi-roll “sectors,” there weren’t 100 different tasks worth doing. In our story, we stipulated that only 90 people could be usefully integrated into the production structure, at least until the fleet of boats and supply of nets start getting restored, allowing more of the “unemployed” islanders to once again have something useful to do.

In the real world, this also happens: during the recession following the artificial boom period, resources need to get rearranged; certain projects need to be abandoned (like hunting for gasoline in the sushi economy); and critical intermediate goods (like boats and nets) need to be replenished since they were ignored during the boom. It takes time for all of the million-and-one different types of materials, tools, and equipment to be furnished in order to resume normal growth. During that transition, the contribution of the labor of some people is so low that it’s not worth it to hire them (especially with minimum-wage laws and other regulations).

The elementary flaw in Krugman’s objection is that he is ignoring the time structure of production. When workers get laid off in the industries that produce investment goods, they can’t simply switch over to cranking out TVs and steak dinners. This is because the production of TVs and steak dinners relies on capital goods that must have already been produced. In our sushi economy, the unemployed islanders couldn’t jump into sushi rolling, because there weren’t yet enough fish being produced. And they couldn’t jump into fish production, because there weren’t enough boats and nets to make their efforts worthwhile. And finally, they couldn’t jump into boat and net production, because there were already enough islanders working in that area to restore the fleet and collection of nets back to their long-run sustainable level.

People in grad school would sometimes ask me why I bothered with an “obsolete” school of thought. I didn’t bother citing subjectivism, monetary theory, or even entrepreneurship, though those are all areas where the Austrian school is superior to the neoclassical mainstream. Nope, I would always say, “Their capital theory and business-cycle theory are the best I have found.” Our current economic crisis — and the fact that Nobel laureates don’t even understand what is happening — shows that I chose wisely.

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Suggestions- GACAP-CAS-Cost Information Presentation

November 11th, 2011

This is a post by CMA Devarajan Swaminathan. He is a practising members based in Thane, Mumbai

Suggestions on GACAP, CAS and essentially on Cost Information Presentation:

Please note that “costs”, “expenses” , “losses” , “expenditure” have NOT been used interchangeably. They all have distinct conotations.

1. The Term “Cost” needs to be redefined to include post production costs. The present cost definition is limited to production. A suggested definition of “cost”

A cost is a measurement, in monetary terms, of the amount of resources used for the purpose of making goods available for sale and includes resources used post sales for honouring pre sales contract (e.g warranty) or resources consumed for the purpose of rendering of services.

2. GACAP and CAS which provides guidance for inclusion of cost elements would therefore adhere to the above definition. In this regard it would make little sense to include the following expenses/losses under “costs”.

i) Bad Debts (bad debt is a loss and not an expense/cost) - can substantiate if asked. Bad Debt must only reflect in the Cost-Financial Reconciliation Statement.
ii) legal expenses incurred for recovering bad debts cannot come as a selling costs but to be shown under business sustenance expenses.

3. Period Costs are expenses incurred for Business Sustenance Purposes. Therefore every product vertical has to make some contribution for absorbing period costs. This could be on the basis of sales value or anyother.

4. Similarly every product vertical has to make some contribution towards CSR Expenses incurred by the Company for the Company as a whole.

5. Interest and finance charges, as suggested by the GACAP to be shown as a part of total cost of sales, should in my opinion, not be shown under the Total Cost of Sales but the same need to be shown as a spearate line item in the cost information presentation.

6. It would make a lot of sense to include imputed risk cost as a separate line item in the cost information presentation. For this we would need a GACAP to provide guidance for recognition, measurement and discloure of imputed risk costs.

7. It is therefore imperative that cost information presentation relfect the above different nature of costs, expenses incurred/imputed. A format is suggested below. It goes without saying that this is not a perfect version and changes and other indeas may be included in this, or this suggested format may be dumped.

Cost Information Presentation



Less:Costs directly attributable to the Product

Direct Costs:

Direct Material

Direct Labour

Direct Expenses

Total Direct Costs


Indirect Costs:

Production Overheads

Administration Overheads

Selling Overheads

Distribution Overheads

Total Indirect Costs


Total Operations Costs

(Direct + Indirect)


Contribution before Interest and finance Charges

(Sales - Total Operations Cost)


Less: Interest and finance charges


Contribution before Business Sustenance Expenses:

Less: Apportioned Business Sustenance Expenses

(Period Costs not directly attributable to the Products)


Adminstration Expenses

Selling Expenses

Distribution Expenses

Interest and Finance Charges


Contribution before apportioning CSR Expenses


Less CSR Expenses:

CSR Expenses 1

CSR Expenses 2


Total CSR Expenses


Net Contribution


Less: Imputed Risk Costs



 Do share your thoughts on the above please.

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Fiat Money and the Euro Crisis

October 11th, 2011
This is a post by Robert Murphy. Robert Murphy is an adjunct scholar of the Mises Institute, where he teaches at the Mises Academy. He runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to “Man, Economy, and State with Power and Market,” the “Human Action” Study Guide, The Politically Incorrect Guide to the Great Depression and the New Deal, and his newest book, Lessons for the Young Economist.

In September I participated in the amazing Supporters Summit, held at the prestigious National Academy of Sciences in Vienna, where Eugen von Böhm-Bawerk once lectured. After my visit to Austria, I piggybacked an excursion to adjacent Slovakia where I was surprised to discover a large number of fans of the Mises Institute and Ron Paul.

Peter Gonda, working through the Conservative Economic Quarterly Lecture Series, had arranged for me to give a lecture, “Money and Banking: the State vs. Market,” to two different audiences. (The videos of the lecture and Q&A period are here.) My lecture itself was quite theoretical, discussing the Mengerian/Misesian perspective on the development of money and banking, as well as the Rothbardian perspective on the dangers of central banking and fiat money.

In the Q&A period of the lecture, and during my interviews with local journalists, however, most people wanted to discuss the Greek debt crisis and the fate of the euro. Yet even here I showed the relevance of the Austrian insights: Germany, Slovakia, and the other frugal countries were only in this mess because the euro was a fiat currency. Had it been backed 100 percent by a commodity such as gold, then the Greek government’s debts would be irrelevant to outsiders.

The PIIGS Sovereign Debt Crisis

Investors are very alarmed that the governments of the so-called PIIGS (Portugal, Ireland, Italy, Greece, and Spain) will default on their bonds. As of this writing, the crisis focuses on Greece, but it may soon spread to other countries. The chart below shows how the foolish bailouts and stimulus spending, coupled with plunging tax receipts, put the governments in fiscal trouble:

Figure 1

Government Debt as % of GDP, Annual Averages

Source: http://www.economist.com/content/global_debt_clock

When I was in Slovakia, the burning issue was whether their government should kick in to the European Financial Stability Facility (EFSF), a €440 billion entity that would buy bonds, make guarantees, and engage in other transactions to reduce the stress on debt issued by the beleaguered PIIGS. The Slovaks were historically a poor but frugal people, and many of them resented bailing out the Greeks who were spendthrifts yet had a higher standard of living. (For those who don’t like stereotypes, don’t send me angry emails: I’m just repeating what the Slovaks told me.)

The average Slovak was in the same unfortunate position as the average American back in the fall of 2008: each was told that they had to pay higher taxes in order to bail out rich people who had made dumb financial decisions. When Americans were told they had to pay for the $700 billion TARP, Treasury secretary Paulson and others warned that failure to do so would lead to a collapse of the banking system. In a similar vein, Europeans today are warned that they need to rescue the PIIGS governments lest the euro itself collapse, taking down the banks with it.

Debt Rules and Fiat Currency

When the euro was first introduced, people were aware of this very danger. That’s why the Maastricht Treaty contained rules on countries wishing to join the euro currency union. Specifically, government budget deficits were not to exceed 3 percent of GDP, and total government debt was not to exceed 60 percent of GDP.

Obviously the Maastricht Treaty’s rules were as binding as the Bill of Rights in the United States. Partly aided by shenanigans involving currency swaps designed by Goldman Sachs, the Greek government flouted the limits of deficits for years. Thus here we are, in the very nightmare scenario about which some economists (such as Milton Friedman) warned at the euro’s inception.

Lost in all the analysis of the theory of “optimal currency area,” the possibilities for a structured default, the consequences of a collapse of the euro, etc., are two simple questions: Why does the behavior of the Greek government have anything to do with taxpayers in Germany? Why did the original Maastricht Treaty have rules about fiscal policy as part of the criteria for monetary union?

The answer is that the euro is a fiat currency, and as such it will always provide rulers with the temptation to monetize fiscal deficits. That’s why the citizens of traditionally hawkish Germany — who grew up with horror stories of hyperinflation — would be very wary of joining a currency union with people who elect spendthrift governments and have central bankers who are doves on inflation.

I tried to illustrate the point to my Slovakian audiences with a thought experiment: Suppose that instead of the fiat approach, the euro from day one had been backed 100 percent by gold reserves. In this arrangement, an organization in Brussels would have a printing press and a giant vault. Anybody around the world — whether private citizens or foreign central banks — could order up euros, so long as they deposited the fixed weight of gold in the vault. Thus, at any given time, every single euro in circulation would be backed up by the corresponding gold in the vault in Brussels.

In this scenario, the people issuing the euros wouldn’t have to run a background credit check on the people applying for new notes. So long as the requests were made with genuine gold, the people printing euros wouldn’t care if the applicant were the German government or Bernie Madoff. Even if some other country had adopted the (gold-backed) euro as its own currency, and then that government defaulted on its bonds, there would be no repercussions for the other regions using the euro as money. People would know that their own euros were backed 100 percent by gold in the vault in Brussels, just as always.

For an American audience, I have another way of illustrating the point. Right now, there is a decent chance that states such as California and Illinois will default on their bonds. Yet this currently doesn’t pose problems for other states, nor does it make investors worry about the “fate of the dollarzone.” This is because few people expect that the Fed will provide massive intervention to prevent state-level defaults.

However, suppose that the Fed does step in and start buying up massive quantities of bonds issued by California, Illinois, Michigan, etc. At that point — once it became clear that state-level deficits would influence Federal Reserve policy — you very well might see something analogous to the current crisis in Europe. You might see the exchange rate of the dollar against other currencies vary in response to changing reports about the fiscal condition of American state governments.


Since the world left the last vestiges of the gold standard in 1971, the global economy has been set adrift. The technocrats keep assuring us that they can steer the economy much more efficiently than the “obsolete” gold standard, and yet a continual series of crises suggest otherwise. We can achieve the dream of the euro — an integrated monetary union where people and businesses can plan their activities spanning several countries without fear of exchange-rate risk — without its attendant pitfalls, but only if people go back to using genuine commodity money.

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Some Observations on Exposure Draft on Tax Accounting Standards

October 31st, 2011

 This is a post by CMA Devarajan Swaminathan. He is a practising Cost Accountant based in Thane, Mumbai

Why TAS is needed?

We need to understand a fundamental difference between TAS and IndAS.

The former is for computation of income, the latter is for investor iinformation. The purpose, as is obvious, different.

Further, prior period items and its later adjustements requires, Ind AS to make changes retrospectively, where as such changes would be effective prospectively in case of TAS.

They have done correctly in providing a guidance in the form of TAS on how income should be computed with a very clear caveat that TAS must not be used for Accounting purposes.

So it does make sense to have TAS, just as CBEC has a very limited purpose CAS 4 for calculating cost of goods despatched, exclusively for Central Excise purposes. The only difference is that CAS 4 is issued by ICWAI, TAS’s are issued by CBDT.

I would like to suggest to base the cost principles in Construction Contracts and Government Grants as provided in the Tax Accounting Standards on the Generally Accepted Cost Accounting Principles (GACAP) AND Cost Accounting Standards (CAS) as issued by The Institute of Cost and Works Accountants of India (ICWAI).

Below are some observations in the treatment as provided in TAS and the comparision in its treatment as suggested in the GACAP and CAS.

Government Grants:

Any Subsidy / Grant / Incentive and any such payment received / receivable with respect to the input cost is reduced from cost for ascertainment of the cost of the cost object to which such amount pertains.


Where the Government grant relates to a non-depreciable asset or assets of a person requiring fulfillment of certain obligations, the grant shall be recognized as income over the same period over which the cost of meeting such obligations is charged to income.

Construction Contracts:


Contract Costs
11. Contract costs shall comprise of :
(a) costs that relate directly to the specific contract;
(b) costs that are attributable to contract activity in general and can be allocated to the contract;
(c) such other costs as are specifically chargeable to the customer under the terms of the contract; and
(d) allocated borrowing costs in accordance with the Tax Accounting Standard on Borrowing Costs.

These costs shall be reduced by any incidental income, not being in the nature of interest, dividends or capital gains, that is not included in contract revenue.

12. Costs that cannot be attributed to any contract activity or cannot be allocated to a contract shall be excluded from the costs of a construction contract.
13. Contract costs include the costs attributable to a contract for the period from the date of securing the contract to the final completion of the contract. Costs that are incurred in securing the contract are also included as part of the contract costs, provided
(a) they can be separately identified; and
(b) it is probable that the contract shall be obtained.

When costs incurred in securing a contract are recognised as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period.

14. Contract costs that relate to future activity on the contract are recognised as an asset. Such costs represent an amount due from the customer and are classified as contract work in progress.

The above contract cost should be based on CAS and GACAP.

According to TAS, Costs that cannot be attributed to any contract activity or cannot be allocated to a contract shall be excluded from the costs of a construction contract, instead the concept in PARA 6 and PARA 8 of GACAP on Application Guidance of Admin O/H may be applied.

PARA 6 of GACAP application guidance on Administration Ovedheads:
The use of the terms “share of administrative overheads relating to production” and “share of administrative overheads relating to selling” in the erstwhile Cost Accounting Record Rules has led to arbitrary practices in some entities to assign all administrative overheads on an arbitrary ratio say 60:40 between production and selling. These terms can only refer to administrative costs of functions attached to production or selling. There will be a residuary head of “Administrative Overheads” which cannot be assigned to production or selling functions representing costs of policy making and strategic management and are to be treated as period costs. Also included in this category are expenses such as Directors sitting fees, audit fees, filing fees and other corporate expenses. Paragraph 6.3 in Cost Accounting Standard 3 on overheads should be interpreted in the light of the above discussions.

PARA 8 of GACAP application guidance on Administration Ovedheads:
The assignment of as much of the administrative overheads as possible based on identified cost drivers is recommended. The balance of administrative overheads can only be assigned to cost centres or objects based on capacity or sales value. It is usual in textile industry to charge corporate office cost to mills based on installed spindle capacity.

For Treatment of Borrowing Costs, GACAP on Interest and Finance Charges may be applied.

Is there a TAS on Borrowing Costs, Para 11 d above??. Here GACAP on Interest and Finance Charges should be used.

Interest and Finance Charges have come to be included in cost of sales though not in cost of production. Such costs are also assigned to products before arriving at margins by product.


Should there be a GACAP on Risk Cost also?
Risk is also factored in cost before arriving at Margins. So, in my opinion, there must be a GACAP for risk cost.

ICWAI must come up with a MAG on arriving at Cost of Capital. The earlier this is done, the better.

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Cost of Compliance, Confidentiality they say? Really??

October 4th, 2011

Cost of Compliance, Confidentiality they say? Really??

This is a post by CMA Devarajan Swaminathan. He is a practicing member based in Thane - Mumbai.

It is interesting to observe when some people raise the pitch on cost of compliance and confidentiality when it comes to cost accounting, its audit and reporting.

Let me try allay some fears

Cost of Compliance:

One Example of the benefits of maintenance of cost accounting and its reporting:


Most of the information that this report contains are also there in the cost audit report. It seems to have plucked it up and consolidated from the cost audit report of various companies.

What does the DSIR actually do by publishing such reports?
Who is to benefit from such a report?
This kind of industry analysis and analysis of India vis-a-vis the world benefits whom?

The cost of compliance they ask? really??


How to make Paracetamol and its key ingredients?


Name a product that you say requires to be kept confidential irrespective of industry or kind of product and I will try to provide you the link of its DNA, its ingredients, its history and geography.

Confidentiality they say? Really??

The point is quite simple. Its about national resources, its pattern of consumption, its productivity, its efficient and effective use. These are national resources belonging to the nation to which each and every one belongs and has equal right. Just by paying a “price” it does not change anything if those resources are not put to use to achieve an end that is in the interest of nation.

This is from a societal and national perspective.
Lets look at it from an analyst perspective. Financial transaction talk about acquisition and use of resources. Resource consumption talks about what has been done with the resources that has been acquired and how best it has been put to use. This is seen in the context of the capital raised, deployed and the product and service that is generated and  provided to the customer and finally the revenue it generates.

Governance is not just about fill in the blanks of various compliance forms, the mad analysis of the financial report and the bottom line. It is essentially about managing business better by making uses of resources acquired and also ensuring that the resources are made available to be sustainable in the long run.

The mad obsession of analysing aggregates to find out what it comprises of without knowing what it actually comprises of makes no sense. Besides this may lead to misleading analysis. Even if it is cash to cash, its of little use if you do not know what the input cash has been put to use for, its most productive use, to generate the maximum output cash. (productivity).

More than anyone, it is the analyst community, financial institutions, banks and mutual funds who must demand cost audit report as an important document for making investment analysis before deploying funds. If the Income Tax Department, Central Excise Department, the Sales Tax Department make use of cost audit report to analyse the leakages in revenue then why not the investment community? Don’t they want to know what is being done with their money? why has a product vertical that was most profitable, in the name of unlocking value been hived off? What is the great secrecy that some want to maintain that they do not want their shareholders to know? This seems to be most prevalent in a family run business rather than a professional run or a public enterprise. What is it that family owned business house don’t want their minority shareholders to know?
I look forward to the analyst community/ providers of risk capital, demanding cost audit report sooner than later as the information that it contains has not been used to its potential by them.

In its Comprehensive Business Reporting Model the CFA Institute has recommended the following which is nothing but cost information reporting as envisaged in the cost audit report.

Principle 10. Changes affecting each of the financial statements should be reported and explained on a disaggregated basis.For investors to be able to understand the changes that have occurred in financial statements and, consequently, to their wealth, it is essential that they be able to analyze the individual forces at work that affect the company’s performance. Accounting standards currently permit assets and related liabilities, revenues, and expenses, as well as investing and financing cash inflows and outflows, to be reported on a highly aggregated or netted basis, causing much important information to be obscured or lost altogether. The information loss can result inmisleading analyses, distorted conclusions, and suboptimal investment decisions. Such aggregation and netting should not be permitted. Similarly, we do not believe that netting should be permitted for individual line items. For example, changes in the property, plant, and equipment account can arise as a result of (1) purchases and exchanges, (2) sales and abandonment, (3) self-construction, (4) mergers and divestitures, (5) leases, (6) foreign currency changes, (7) depreciation, and (8) impairment write-downs. Clearly, information as to the precise source of the change is essential if investors and other users are to evaluate managers’ investments in productive capital, the effectiveness of managers’ decisions to invest scarce capital, and the value of the company’s capital. It is important to note that IAS 16 requires a full reconciliation of the change in gross fixed assets and accumulated depreciation.

Principle 11. Individual line items should be reported based upon the nature of the items rather than by the function for which they are used. By “nature,” we mean that items should be reported by the type of resource consumed, such as labor or raw materials, rather than by the function or purpose for which it is used, such as cost of goods sold or selling, general, and administrative expense. Categorization according to nature can greatly enhance comparability across companies and consistency within the statements of a single company. Currently, users of the statements cannot determine from the statements or related disclosures where individual items, such as pension expense and depreciation, are recorded in the income statement. The statistical distribution properties of the various resources consumed in operations behave very differently over time. Consequently, aggregation by function, the current practice, merges items with different properties, reducing the information content of the items and significantly reducing their value as decision-making factors. We believe that functional disclosure is best reserved for segment reporting where the categories are most likely to be more nearly homogeneous and, therefore, more meaningful for assessing the profitability of individual units.

More later.

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Legal Updates - May and June 2011

July 24th, 2011

This is post by CMA V.S.Datey. http://dateyvs.com/gta.htm

Legal Resume May and June 2011

.Service Tax

Stay on service tax on legal consultancy

Hon. Madras High Court has granted interim stay on 24-6-2011, for recovery of service tax on legal consultancy services from members of Revenue Bar Association, Chennai.

Sub-Contractor not liable when he is providing construction service which is not taxable

Sub-contractor is liable even if main contractor is exempt from service tax – CBE&C circular No. 138/7/2011-ST dated 6-5-2011.

This circular gives an impression that all sub-contractors are liable to pay service tax. This is indeed not so.

The departmental circular is valid if the sub-contractor provides as service which falls under a different head and is not an exempt service. For examples, if the sub-contractor provides service like Architect, Consulting Engineer, Design Service, Manpower Recruitment and Supply Service, such service will be taxable even if the services provided by main contractor is not taxable.

However, if the sub-contractor provides a service which is exempt, it will continue to be exempt. For example, a contractor has received contract for construction of dam, road, tunnel or bridge which is exempt from service tax. Now, instead of doing the work himself, if he gives the work of construction of dam, road, tunnel of bridge to a sub-contractor, the service of sub-contractor will be exempt since he is himself providing service of construction of dam, road, tunnel or bridge.  

In fact, para 4 of the CBE&C circular No. 138/7/2011-ST dated 6-5-2011 specifically states that service provided by the sub-contractors/consultants and other service providers are classifiable as per section 65A of the Finance Act under respective clause of sub-clause (105) of section 65 of Finance Act, 1994.

If the construction is not commercial or is relating to road, bridges etc., or is for personal residential use of customer, the main person (builder or developer or main contractor) is not liable. The definition of ‘construction service’ refers to type of construction and not to type of contract. The exemption/exclusion depends upon type of construction. Thus, even if the work is done by contractor/sub-contractor, the nature of construction does not change and hence it would not be subjected to service tax.  Moreover, an exemption notification cannot be interpreted in a way which will defeat its very purpose

[One argument is that relation between the main person (builder/developer) and the contractor/sub-contractor is on commercial basis and hence it is commercial construction. In my view, this is not correct for the reasons stated above.].

On the same analogy, services provided by sub-contractor to contractor in SEZ should also be exempt, since ultimately the service is received by the SEZ Unit or SEZ Developer.

If the issue goes to Court, it will be interesting to know final outcome. Of course, if someone intends to take aforesaid view, it is advisable to make full disclosure to department in advance to avoid charge of suppression of facts.

Consulting Engineers to pay service tax on receipt basis

Service tax is payable on accrual basis and not on cash basis, w.e.f. 1-4-2011. Relaxation has been given to professionals like CA, ICWA, Architect, Advocates etc. can pay on receipt basis. This relaxation has also been extended to consulting engineers w.e.f. 1-7-2011.

Service tax on transport of goods by rail again deferred

Proposed service tax on transport of goods by rail (other than container) has been defereed once again upto 1-1-2012.

Central Excise

Inputs can be cleared for export on payment of duty and rebate claimed

In CCE v. Micro Inks (2011) 31 STT 144 = 10 taxmann.com 166 (Bom HC DB), assessee had obtained inputs and capital goods from domestic suppliers. These were exported on payment of duty by reversing the Cenvat credit. It was held that assessee can be treated as ‘deemed manufacturer’ and is eligible to get refund.

Putting brand of school, security agency, company, hotel, on readymade garments is not ‘branding’ of readymade garment

Uniforms (Ready-made garments) are supplied to schools, private security guards, companies, hotels, airlines etc. with their logo printed, embroidered or etched on them. Similarly, made ups like linens, quilt, blankets, towels are supplied to companies, hotels, airlines, security agencies etc., bearing their logo. In addition, name of tailor or manufacturer is affixed on such garments (for identification). Similarly, blankets are supplied to armed force, police force etc. with name of manufacturer., as per requirement of tender.

Such garments are not ‘branded garments’ and these will be eligible for SSI exemption – MF(DR) circular No. 947/8/2011-CX dated 21-6-2011.

(This is correct since there is no trade in the goods by such school, hotel, airline, armed force, police force etc. The principle should apply to other goods also, though there are some contrary decisions, even of Supreme Court, on similar issues).

Cenvat Credit

Furniture and stationary used in factory eligible for Cenvat

Goods such as furniture and stationary used in an office within the factory are goods used in the factory and are used in relation to the manufacturing business and hence the credit of same is allowed.- Para 3 of MF(DR) TRU(I) letter D.O.F. No. B-1/3/2011-TRU dated 25-3-2011.

Foreign Trade Policy

DEPB scheme extended for three months

DEPB scheme has been extended upto 30-9-2011. DEPB scheme has been in ICU and on oxygen for a very long time. No one can predict how long it will live.

Companies Act

MCA going ahead with implementing Companies Act, 2011 even though the Bill is not even tabled before Parliament

Ministry of Corporate Affairs have introduced many welcome radical reforms in implementation of Companies Act, without waiting for even presentation of new Companies Bill before Parliament.

Under the banner ‘GO GREEN’, sweeping reforms are being introduced through circulars and notifications. If so much can be done through circulars, there may not be need for new Company Law! The circulars and notifications are issued so fast that in almost all the cases, a corrigendum or amendment has to be issued later.

Major changes are summarised below.

bullet Balance sheet and Notices to members can be sent through e-mail [This has saved tons and tons of paper, as almost 80% of the balance sheets to in waste paper basket even without being opened!] (Of course, paper industry, printers, mailers and couriers are highly unhappy).
bullet Participation of members in general meeting through video conferencing allowed (Welcome step but making it compulsory to all listed companies from year 2012 is not very practical).
bullet Provision for electronic voting by members in postal ballot, if done through approved Agency (NSDL and CDSL) [This should be helpful in voting in postal ballot as presently, except promoters and their friends, hardly anyone else bothers to post the ballot papers].

bullet Directors can attend meeting through video conferencing provided they attend at least one meeting physically every year
bullet Payment of all fees to MCA only through electronic mode w.e.f. 1-10-2011.
bullet ROC will issue only certificates digitally signed. No physical certificate will be issued.

Liberilasion and Procedural simplifications in Company Law matters

bullet DIN Application to be filed electronically only. Application duly certified by practicing CA/VWA/CS will be approved by system immediately, except in case of potentially duplicate applications.
bullet Forms 2, 3, 18 and 32 will be approved automatically (Straight Through Process).
bullet LLP of CA can be appointed as Auditors
bullet Sections 108A to 108I of Companies Act no more applicable as MRTP Act abolished.
bullet All work to be attended by officers on FIFO basis, without giving any priority to any work.
bullet Section 25 companies (licensed company) to be approved by ROC and not Regional Director).
bullet Approval of Government for appointment of relative of director to office of profit required only if remuneration exceeds ` 2.50 lakhs per month.

bullet Disclosures of salaries of employees required only when salary exceeds ` 5 lakhs per month.
bullet Large companies to file balance sheet in XBRL format.

PAN must be incorporated in DIN before 30-9-2011

Quoting PAN in DIN is must now (earlier the application form did not require PAN number). Those who had filed DIN application earlier and had already obtained DIN must submit their PAN number before 30-9-2011. If they do not do so, heavy penalty will be imposed on them – MCA circular No. 32/2011 dated 31-5-2011.

Extra judicial means to ensure compliance with law

Many companies only file event based information (like appointment of directors, issue of securities, registration of charges) but do not file balance sheet and annual reports. In case of such companies, e-filing of such event based information will not be accepted by the system, except the forms 32, 20B, 21A, DIN-3, 21, 23B and 66 – MCA circular no. 33/2011 dated 1-6-2011.

Government or BIFR approval to managerial remuneration only in case of listed companies

Minimum remuneration even higher than the prescribed  limits can be paid. The company has to comply with all the five conditions specified i.e. remuneration committee, no default in debt repayment and interest, special resolution for three years and disclosure in Corporate Governance Section of Directors’ Report.

In addition, Central Government approval will be required, if the company is a listed company or subsidiary of a listed company, except where the remuneration is approved by BIFR [Amendment w.e.f. 8-2-2011 and 23-5-2011. Till 8-2-2011, Government approval was required in all the cases].

In case of subsidiary of a listed company, such Government approval is not required if (a) the remuneration committee and Board of Directors of holding company give their consent for the amount of remuneration (b) Remuneration is approved in general meeting of holding company (c) The remuneration of applicant is deemed to be remuneration paid by holding company and (d) all members of the subsidiary are bodies corporate – Fifth proviso to section 2(C) in part II Schedule XIII inserted w.e.f. 23-5-2011.

Cost Accounting and Cost Audit

Vast expansion in scope of cost accounting record Rules

Companies (Cost Accounting Records) Rules, 2011 have been notified. These rules shall apply to every company, including a foreign company as defined under section 591 of the Act, which is engaged in the production, processing, manufacturing, or mining activities. Even service sector has been covered. The definition of ‘manufacture’ and ‘product’ are so wide that practically, except trading activity, the Rules will apply to all activities.

These Rules apply where (a) the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or (b) wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or (c) wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India.

However, these rules shall not apply to a company which is a body corporate governed by any special Act (e.g. Banking and Insurance).

Industry-wise Cost Audit Ordered

So far, Cost Audit orders were issued to individual companies. Now, industry-wise orders have been issued for the first time. General orders have been issued as follows –

(a) Order No. 52/26/CAB-2010 dated 2-5-2011 in respect of specified products where net-worth of company is more than ` five crores or turnover of company is more than ` 20 crore or where the equity or debt instrument of company is listed on stock exchange. The order covers Bulk Drugs, Electricity Industry, Fertilizers, Formulations, Industrial Alcohol, Petroleum Industry, Sugar and Telecommunications.

(b) Order No. 52/26/CAB-2010 dated 3-5-2011 in respect of specified products where turnover of company is more than ` 100 crore or where the equity or debt instrument of company is listed on stock exchange. The order covers Cement, Tyres and Tubes, Steel Plant, Steel Tubes and Pipes, Paper and insecticides.

Simplified procedure for appointment of Cost Auditor

The procedure as applicable w.e.f. 1-4-2011 is as follows –

Audit Committee of Board of Directors of company shall consider appointment of cost auditor. It will ensure that cost auditor is not disqualified and does not exceed prescribed limit under section 224(1B) of the 1956 Act. It will obtain certificate from cost auditor about his/its independence and arm’s length relationship with the company. Then appointment will be confirmed by Board of company.

The company will file application electronically in form 23C within 90 days from commencement of each financial year, along with prescribed fees with copy of Board resolution and copy of certificate from cost auditor regarding compliance of section 224(1B) of Companies Act.

On filing application, the same shall be deemed to have been approved by Central Government, unless contrary is heard within 30 days of filing such application. If within 30 days, Central Government directs the company to re-submit application with additional information, the 30 days period shall be deemed to be from date of re-submission by the company.

After 30 days, company shall formally appoint Cost Auditor by a formal letter. Then, the cost auditor shall inform Central Government of his appointment in e-form.

Full particulars of cost auditor, along with due date and actual filing of cost audit report by cost auditor shall be disclosed by company in its annual report – MCA circular No. 15/2011 dated 11-4-2011.

Labour Laws

Fresh charge sheet to be issued in case of de novo proceedings

Disciplinary proceedings commence only when a Charge sheet is issued the delinquent employee - Valuation rules to be applied sequentially –- Chairman, Coal India  v. Anitha Saha  (2011) 5 SCC 142 (In this case, it was held that if High Court had ordered de novo enquiry, fresh charge sheet is required to be served).

Back wages not automatic even if workman is reinstated

Even after punishment is quashed by the Court or Tribunal, the payment of back wages still remains discretionary, No straight jacket formula can be evolved, nor a rule of universal application can be laid for such cases. Approach of Court or Tribunal should not be rigid or mechanical but flexible and realistic - Chairman, Coal India  v. Ananta Saha  (2011) 5 SCC 142.

Other Corporate Laws

Competition Act made fully operational

Provisions in Competition Act relating to ‘combinations’ have been made effective from 1-6-2011.

The value of assets and turnover as indicated in section 5 of the Competition Act for purpose of combination stand enhanced by 50% - Notification No. S.O. 480(E) dated 4-3-2011.

Following transactions have been exempted from provisions relating to Combination for a period of five years –

* Group exercising less than 50% of voting rights in other enterprise [S O No. 481(E) dated 4-3-2011].

* Acquiring control, shares, voting rights or asset of an enterprise which either has assets not more than ` 250 crores in India or has turnover not more that ` 750 crores in India [S O No. 482(E) dated 4-3-2011 as amended].

FCRA notified and made effective

Foreign Contribution (Regulation) Act, 2010 have been notified and made effective from 1-5-2011.

The Act has been notified and has been made effective from 1-5-2011.

Foreign Contribution (Regulation) Rules, 2011 have been notified prescribing forms and other provisions.

Limitations of Arbitral Tribunals

In Booz Allen and Hamilton INC v. SBI Home Finance Ltd. (2011) 5 SCC 532, it has been held as follows – (a) All rights relating to rights in rem are required to be adjudicated by Courts and public Tribunals as these are not suited for private arbitration. Private arbitration can decide rights in personam. (b) Criminal offenses, matrimonial disputes, guardianship matters, insolvency and winding up, testamentary matters (grant of probate, letter of administration, succession matters), tenancy matters governed by special statutes.

In this case, it was held that a suit for sale, foreclosure or redemption of a mortgaged property should only be tried by Court and not by Arbitral Tribunal. However, specific performance of right like agreement to sale or mortgage does not involve any transfer of rights in rem. It creates only personal obligation and hence is arbitrable.

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Costing drives sustainability measurement in organizations

July 10th, 2011

This is a post by CMA R.Veeraraghavan. He is a Fellow of the ICWAI,  Dy. CAO at the Mumbai Port Turst and also a moderator in this portal.

Lack of transparent performance measurement and reporting in the business world is the main reason for the global financial crisis that we are witnessing in the recent past.

Performance measurement has two aspect one is measurement of resources and the other is enumerating its cost for a business activity.

Except in the Indian law, given below none of the legislation has a pervasive clause of performance measurement, performance measurement is tool for measuring cost and consumption of resources, where as triple bottom line are dimension or areas of such measurement pervasiveness.


Integrated Reporting.


Integrated Reporting-Triple Bottom line_CSR and Environment reports,green reporting as they are often referred to, would be an inadequate exercise,if devoid of or not supplemented by a good costing system in place , and a good cost management Reporting.
Simply capturing expenditure and reporting the proportion to revenue spent from transaction accounts would not serve the real purpose of sustainability under a holistic model.

Business survives on value created out of the environment -whether it impacts the environment or the other way round-sometimes businesses build environment.

Environment are of three kinds :

1.The Green.-Physical.The Colour that represents fertile feature.

2.The Yellow.-Social.The colour that represents prosperity.

3.The White.-Economic. The colour that represents transperancy.

All these types of environment enriches on the cost sunk and the resources that gets exploited through business activity.

Business principle is to minimise cost - optimise resource consumption and maximise Value creation.

Transaction Accounting(financial Accounting)with its inherent deficiency cannot address the above concerns, it is when the cost Accounting gets rolled out in a systematic and continuous exercise format would the business truthfully and transparently run value to the stakeholder.

It is thus of prime concern that all our efforts across the globe is to develop a system of universally accepted cost accounting principles and make entities observe these principles and give credence the integration of reporting mechanism.



Sustainability Report:

Sustainability reporting is the practice of measuring,
disclosing, and being accountable to internal and
external stakeholders for organizational performance
towards the goal of sustainable development.


‘Sustainability reporting’ is a broad term considered
synonymous with others used to describe reporting on
economic, environmental, and social impacts (e.g., triple
bottom line, corporate responsibility reporting, etc.).


Where it builds on:

Economic- material and labour and other items of cost. this other items of cost is expansive to include social and environmental cost and concumption and ideally they are overheads to the product and processes and impact their sustainability at strategic and operational levels.


Integrated Reporting demonstrates the linkages between an organization’s strategy, governance and financial performance and the social, environmental and economic context within which it operates. By reinforcing these connections, Integrated Reporting can help business to take more sustainable decisions and enable investors and other stakeholders to understand how an organization is really performing.


Costing improves performance in organizations-IFAC-PAIB.

1. IGPG Document.


The creation, operation, alteration, and cessation of every action and function in an

organization – whether within the private, public, or voluntary sector – all consume

economic resources. Measuring, accumulating, and assigning those resources to the

organization’s various processes and outputs allows the structure and operation of the

organization to be explained, understood, and improved. Costing, the accounting term

that embraces these processes and expresses them using money as a common language,

lies at the heart of managerial accountancy and, exercised intelligently, is among the most

powerful disciplines available to professional accountants in business (PAIB).


1.2. Costing contributes to an understanding of how profits and value are created, and how

efficiently and effectively operational processes transform input into output. It can be

applied to resource, process, product/service, customer, and channel-related information

covering the organization and its value chain. Costing information can be used to provide

feedback on past performance, and to motivate and change future performance. Costing is

thus an essential tool in creating shareholder and stakeholder value. Given its importance

and breadth of scope, it is unsurprising that many different costing methods exist, both in

the literature and in practice. This can create confusion and uncertainty for managers, and

PAIBs need a sufficient understanding of sound costing principles to be able to select and

apply useful approaches.

1.3 The basic building blocks of costing are operational measurements of consumed resources

(resources include people, space, equipment, and consumables, these being the drivers of cost

and levers of change). Such measurements enable managers to draw conclusions and make

judgments about why (a) the organization’s results turned out as they did (performance

evaluation), (b) what this means for the future (planning), and (c) the probable results of

available courses of action (analysis of alternatives) all of which comprise essential

information for effective decision making. The principles in this International Good Practice

Guidance (IGPG) support the application of judgment in providing good decision support. In

turn, this calls for the professional accountant in business to clearly understand why cost

information is to be used.




http://bit.ly/qSj5LU costing continuum.


Deficiency in laws under various geographies:


UK company Law 2006

Accounting Records:


386 Duty to keep accounting records

(1) Every company must keep adequate accounting records.

(2) Adequate accounting records means records that are sufficient—

(a) to show and explain the company’s transactions,

(b) to disclose with reasonable accuracy, at any time, the financial position

of the company at that time, and

(c) to enable the directors to ensure that any accounts required to be

prepared comply with the requirements of this Act (and, where

applicable, of Article 4 of the IAS Regulation).

(3) Accounting records must, in particular, contain—

(a) entries from day to day of all sums of money received and expended by

the company and the matters in respect of which the receipt and

expenditure takes place, and

(b) a record of the assets and liabilities of the company.

(4) If the company’s business involves dealing in goods, the accounting records

must contain—

(a) statements of stock held by the company at the end of each financial

year of the company,

(b) all statements of stocktakings from which any statement of stock as is

mentioned in paragraph (a) has been or is to be prepared, and

(c) except in the case of goods sold by way of ordinary retail trade,

statements of all goods sold and purchased, showing the goods and the

buyers and sellers in sufficient detail to enable all these to be identified.


Australia Corporations act 2001

Part 2M.2Financial records

286 Obligation to keep financial records

(1)  A company, registered scheme or disclosing entity must keep written financial records that:

(a)  correctly record and explain its transactions and financial position and performance; and

(b)  would enable true and fair financial statements to be prepared and audited.

The obligation to keep financial records of transactions extends to transactions undertaken as trustee.

Note:          Section 9 defines financial records.

Period for which records must be retained

(2)  The financial records must be retained for 7 years after the transactions covered by the records are completed.

Strict liability offences

(3)  An offence based on subsection (1) or (2) is an offence of strict liability.

Note:          For strict liability, see section 6.1 of the Criminal Code.


United states

California Code for corporations:


SECTION 1500-1512

1500.  Each corporation shall keep adequate and correct books and
records of account


This report shall contain a balance

sheet as of the end of that fiscal year and an income statement and a

statement of cashflows for that fiscal year, accompanied by any

report thereon of independent accountants or, if there is no report,

the certificate of an authorized officer of the corporation that the

statements were prepared without audit from the books and records of

the corporation.



209. Books of account to be kept by company.—

1[(1) Every company shall keep at its registered office proper books of account with respect to—

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;

(b) all sales and purchases of goods by the company; 2[***]

(c) the assets and liabilities of the company; 3[and]

3[(d) in the case of a company pertaining to any class of companies engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or labour or to other items of cost as may be prescribed if such class of companies is required by the Central Government to include such particulars in the books of account:]

Provided that all or any of the books of account aforesaid may be kept at such other place in India as the Board of directors may decide and when the Board of directors so decides, the company shall, within seven days of the decision, file with the Registrar a notice in writing giving the full address of that other place.]


Thus there is an urgent need to address the concerns of governance through- ethics transperancy and a good measurement tool that lay in implementation of a cost accounting system mandated across the globe by different geography to supplement the reporting mechanism of business processes.

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The Mauritius Advantage—DTC

July 4th, 2011

 This is a post by Indraneel Sen Gupta. He is a financial, economic writer and research analyst.

The Mauritius Treaty controversy … debated, discussed and beaten to death, but still unresolved after more than a decade.  Though the controversy has meandered through many interesting events, it has been one step back for every step forward.  The Government’s position on this controversy is almost a barometer for the Indian economy.

1990’s …India was taking its first unsteady steps as a liberal capitalist state and keen to encourage foreign investment the Government issued a circular in 1994, stating that gains earned by Mauritian residents from sale of Indian shares would not be taxable in India.  2000 …steadily growing and still in need of foreign investment.

When a zealous Tax Office tried to raise the ‘conduit’ argument to deny the Treaty benefits, the Government in swift and decisive action issued the famous circular 789.  In 2004, SC in the AzadiBachaoAandolan, one hoped, firmly put the issue to bed.  Justice Ruma Pal observed that Treaties at times went beyond just tools for Revenue collection and sought to achieve other objectives such as encouragement of trade and commerce, foreign investment flows etc…

2004 onwards …the Government, probably buoyed by steady growth and a conviction that India was too important for any investor to ignore, changed sides.  The Tax Office in umpteen cases is making attempts to deny the Treaty benefits and litigations are proliferating.

A recent press report suggested that the Tax Office has collected a list of entities that are taking advantage of the Treaty, a list of potential ‘targets’.  The Government is gunning for an amendment in the Treaty citing massive ‘revenue loss’ due to the capital gains shelter.

The proposed GAAR in the Indian Direct Tax Code is the latest variable in a convoluted paradigm and threatens to completely derail the Mauritius band wagon.  GAAR will be invoked to re characterize/annul transactions which lack ‘commercial substance’ with almost unbridled discretion available to the Tax Office.

‘Commercial substance’ is a concept which is ambiguous and has led to a plethora of litigation even in highly developed tax regimes such as Canada and Australia.  One can imagine a tool like this, in the hands of an overtly zealous Tax Office, wont to litigation, which has been striving to scuttle the Treaty, will wreak havoc with investors.

Investors are getting nervous and the Advance Ruling Authority has become a favorite destination. Others are buying insurance against tax risk.  Is this behavior warranted?  India is still a far cry from its potential of being a global leader; we need billions of dollars to fund our infrastructure and social sectors, to fund employment opportunities and to tap the potential of our teeming billions, to trickle down the fruits of capitalism to the rural sector.

At this stage, undermining the importance of a robust investment holding structure is fraught with risk for India.  A 20% (capital gains rate) swing in return economics is a significant play and definitely a key factor in some of the investment decisions in India, at least in the FII and private equity space.  While growth rates in India are zooming, so are valuations (the Indian stock market today trades at 17-18 PE, one of the highest in the world) and hence the capital gains tax shelter provided by Mauritius cannot be undermined.

Investment flows create a big multiplier for the economy and that has to be weighed against any ostensible loss of revenues.  The Government cannot afford to take a myopic view; the numbers speak for themselves …almost 40% of India’s FDI and 50% of FII investment is from Mauritius.  One could argue that none of this will change even if the Treaty went …possibly, but why argue with success, with a winning formula?

India’s concerns around round tripping and money laundering are probably more justifiable and need remediation and should be reviewed in any Treaty re-negotiations. Though in this space, Mauritius, has certainly taken many steps over the years.  Mauritius casts onerous requirements on companies for the issue of Tax Residency Certificate, the banking system has strengthened KYC norms, it has made tax laws more robust and onerous and Mauritius was removed from the OECD watch-list of tax havens. It has co-operated with India on sharing information on fund flows in cases of suspected round tripping.

I also want to raise a debate on the notion that there is significant ‘revenue loss’ due to the capital gains shelter under the Mauritius Treaty.  Is a capital gains tax on shares, equitable?  As a tax policy matter, there is at least one school of thought that believes that taxing capital gains on equity tantamounts to double taxation.

The capital gain represents capitalization of future corporate earnings which will anyway be taxed as corporate profits (barring cases of tax holidays, which are anyway proposed to be done away under DTC) in future.  The Kelkar Committee (in 2002) had made a recommendation to do away with such a tax.

In summary, there is merit for the Government to seriously re-look at its strategy around the India Mauritius Treaty.  It has been a key enabler for fund flows in the past and will likely continue as such.  Even if revenue loss is a concern, there are several other adjacencies and ancillary benefits associated with higher investments which probably more than offset any perception of a revenue loss.  The current situation is really undesirable.  The investor today is confused and is running amok to review his options.

The need of the hour is (1) for the Tax Office to respect settled law and the Government’s own famous circular 789 (2) provide clarity on applicability of GAAR (under DTC) in the context of the Treaty, with a clear definition of ‘commercial substance’ in the context of a holding company and possibly only restrict it to cases of round-tripping (3) clarify that existing investments which were evaluated under extant law and hence already baked in the benefits of the Treaty would be grandfathered and not get impacted by GAAR.

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June 27th, 2011

This is a post by CMA Ananda Mohapatra


A note on Accountancy, a watch dog of States/Nations’ sustainable economic development is presented herewith below with background references in due consideration to our previous communications, specifically due to call of time and situation for building the State/Nation strong, prosperous and developed.


1. Consequent upon the Press release of Union Ministry of Corporate Affairs(MCA), GOI (Govt. of India) of date 25th Feb-11 notifying thirty-five (35) Indian Accounting Standards converged with IFRS ( referred to as Ind-AS), Invitation along with the attachment of circular for IFRS Summit-2011 issued & mailed by Mr. Sethuraman Mahalingam, Chartered Accountant, Hon’ble Chairman, CII (Confederation of Indian Industry) IFRS (International Financial Reporting Standard) Summit-2011 & ED (Executive Director) Cum CFO (Chief Finance Officer) of Tata Consultancy Services Ltd, with the theme “Final steps towards IFRS Convergence” scheduled to be held on dated 18th May-11 at The Taj Mahal Palace, Mumbai.

2. Notification published in Gazette of India of Union of India on dated 3rd Mar-2011 issued by MCA, GOI concerning to Election to the 18th Council and FOUR Regional Councils of ICWAI (A statutory Body set up under an Act of Parliament), an apex body of Accountancy of the Nation for the term 2011-15 and the responses of esteemed Members then and there in the period commencing from the date of issue of final nominations to till date including Notification dated 7th Mar-11 concerning issue of election manifesto in the part of the contesting candidates.

3. Issue of an Anti-Competitive Retail Supply of Electricity Tariff Order dated 18th Mar-11 by OERC (Odisha Electricity Regulatory Commission), a quasi-judicial independent body set up by an Act of Parliament ( Referred to as Electricity Act-2003) applicable to 4.5 crores people of Odisha, then the reactions of majority learned Members of State Legislative Assembly of Odisha including put up of an adjournment motion, review petition filed by GOO (Govt of Odisha) and the stay order issued by Hon’ble High Court, Odisha on dated 31st Mar-11 consequent upon filing of a PIL before the Court praying to declare the aforesaid tariff order as illegal, arbitrary, biased & anti-competitive.

4. Competition Act-2002, Companies Act-1956 & Companies Bill-2009 along with the amendments and the Notifications issued by Union Ministry of Corporate Affairs, GOI in the subject matter of competition laws then and there including it’s planning to put up Companies Bill-2009 in the august house of Parliament in the ensuing Monsoon Session.

5. Current year weather report and climatic condition of Sambalpur so also of Odisha during this month of April-11 in comparison to corresponding month of previous years.

6. Different Theories of Economic Development and its Formulae of Sustainable Development I.E., “Professionalism-Competition-Financial Viability-Customer Service” vrs “Energy-Environment-Employment-Economics” communicated previously.

7. Development of ODISHA so also Nation and the role of Media, the Fourth Pillar of Indian Democracy after showing due regards to Indian Culture and religion, the culture of his Lord ShreeJagannatha and his Mausi and Mausi’s sister Maa Samaleswari (Goddess of Resources) and the teachings of Shree Shree Thakur Anukulchandra on Accountancy/Economics, Politics etc.

Accountancy is a branch of mathematical science that is useful in discovering the position of business, the causes of both success and failure. Accountancy is defined by the Oxford English Dictionary as “the Profession or duties of an Accountant”. In the ancient Vedic period, people were using accountancy. In Atharvaveda and Rig Veda we find the term like “Vikraya” denotes Sale , “Sulka” means price. Similarly in every ancient Sastras/Books like Quran, Bible, etc we find Accountancy in different mode but with a common objective. It is thousands of years old; the earliest accounting records, which date back more than 7,000 years, were found in Mesopotamia (Assyrians). The people of that time relied on primitive accounting methods to record the growth of crops and herds.

In our words, Accountancy is a game of “Plus” and “Minus” or Income and Expenditure and what is the status of the Enterprise at a particular date. It is also an Add-Less game. How much we are adding or how much we are spending for attaining a common goal? These processes are called Accountancy. Over the period of time, Accountancy did not able to establish itself as a machine to process the data suitably for sustainable development of the economy. Corruption in the society has touched to every one due to failure of Accountancy. We have come across several events of failure of Accountancy as seen in case of Satyam Scam, Enron Scam, Securities fraud etc but proper remedial measures could not be taken due to its’ intricacy. Though the subject is very simple but we made it difficult due to our unlimited wants. As the subject is read/implemented in English only where very little scope opened for other languages. We inserted difficult terms for a simple function in Indian Accountancy and dissuaded commons far away for which it lost its’ popularity and started to run in the direction of elimination and alienation. Due to lack of proper reading and implementation of accountancy in governance of Govt and Non-Govt Sector, Nation have lost huge resources in the name of 2G Spectrum Scam, Land Scam, CWG Scam, Power Sector Loss Scam etc resulting low growth rate, raising of poverty and un-employment and lastly damaging to good environment. So in an era of liberalisation of economic activities of the Nation, time has come now to think over the subject for sustainable development of the economy. Real economic progress with true inclusive growth can only be possible and attained with its’ friendly implication which is not at all a difficult job in the part of Senior Members of the Apex Body of accountancy.

The title of this Article is Accountancy: Watch Dog of Sustainable growth/Development of economy. If we critically view Accountancy then we to find that Auditing, Finance, Economics, Management, Reporting, Analysis and the similar topics are the branches of the main subject of Accountancy but we did not read it properly for which we lost many things including harming to God gifted good environment. We the people became poor, the gap between poor and rich increased. Developed Nations including USA , UK , Franch, Switcherland , Germany found scope to comment on our Poverty. “Transparency International” was created to study and report our problems of backwardness. But we the people did not try to know the international politics of his Lord, Lord ShreeJagannath or Lord Radhaswami or Lord Ram and even forgot our Guru. We started to quarrel with each other by competing with each other without knowing the rules of the game of Competition. We forgot his Lords’ World Theory “Vashudeva Kutumbankam” (Globe Brotherhood) also but propagated without showing any confidence and without any implication, paved way for the third men to interfere who were least concern with Indian Culture, Religion and Tradition. In the process our resources get started to occupy by few corrupted hands. We invited the worse situation of un-employment/poverty due to non-professional in our approach, forgetting social responsibility and wrongly implementing Accountancy in governance.

Accountancy is a common practice of every household of the Nation. The subject was very easy in the past and is required to be presented suitably for common access to reach the target of up-keeping the pace of sustainable development of the economy. Even today we are not able to present the Consolidated Balance Sheet of the Nation. Balance Sheet of a system/concern speaks the performance of its’ Accountancy. Though it is not presented but we know very well what is the position of Balance Sheet of the households of the Nation. We have also provided with the Balance Sheets of Govt and Non-Govt Organisations and what its’ position we know it very well. The true and fair picture of the organisations which suppose to be reflected in the Balance Sheet have lost in the process of accountancy due to adoption of inaccurate presumptions. Some of the inaccurate presumptions are appended herewith as follows:

i) We tried to manage our resources with the mindset of unlimited wants which gave birth to inaccuracy in decision making.

ii) We rated our self inaccurately. We over estimated our self as Professionals. Later on we failed to discharge the fixed duties of a Professional.

iii) We inaccurately planned to eliminate corruption which is not at all true. Corruption can not be eliminated. It was there in mythological periods of history, even Lord Krishna and Lord Ram have not escaped from corruption. Society will lost it’s pleasure in the absence of corruption because the definition of corruption is infinite. If once we think our daily functioning throughout the day including personal work to official work from leaving bed from morning to going to bed at night, then can we finalise to divide the total functioning into just and un-just? We can not rated ourself. So corruption is a relative term which can be assessed by applying Accountancy.

iv) We deliberately avoided some principles for personal gain while taking decision. We observed Ram-Laxman theory but forgot Krushna-Balaram theory. In both the cases almighty lord is present but in different exposure. In the first case he was playing the role of big brother but the second case he played the role of younger brother. So we forgot to implement one side of his lords’ theory of development.

Due to failure Accountancy implication, Corruption started to spread over the society vibrantly. We the people feel today how corruption in the society have snatched away the bread and butter of millions. We saw multi billion rupees scams, irregularities and misappropriations in functioning of governance of Govt and Non-Govt sectors which relate with national importance. Anna Hazzare represented we the people and continued hunger strike to protest against corruption by demanding Peoples’ representation in JAN LOKPAL Bill Committee. Govt of India felt the implication and cooperated we the people for finding out solution. It is the start of the work against corruption in a specific area needs to be expanded to other area.

Ornament is made of gold but it is not pure gold. Ornaments can not be made of with pure 24 Carat Gold. A meagre quantity of non-gold metal is mixed up with gold to make ornaments. The meagre % (Let us Say 4%) of mixing of non-gold metal with gold is allowable and pass on by we the people. But if the share of non-gold metal mixing with gold exceeds the allowable limit of 4% for making ornament, then it is not passed on. While the % of mixing non-gold metal in gold ornaments exceeds 50%, then the ornament can not be passed on with name gold-ornament. In the society today corruption has exceeded highly than allowable limits. It is now running above 50%. Ornament is lovely used by women and it can not be separated from them so far as Indian Culture and Tradition are concerned. We the people enforced to Mother India so also to her sister Mother Odisha to wear duplicate gold ornament but they did not wear and politics started then of fear and favour. Corruption in the society has spread in such a level that Mother India and Mother Odisha are fearing to move by wearing gold ornaments due to stealing away of ornaments by anti-socials.

So while setting the plans and policy and approving the subject, we are to be very cautious to pass on resources in the head of corruption. Let us we fix up the target of lessening 50% of corruption, so that it will be easy in our part to achieve the target.

The concept of Profit/Loss of a system is being born from corruption. So while calculating profit/loss of a system, we are to be very cautious to load a reasonable % on cost to Pass on. In our view this Profit/Loss of any systems can be restricted with maximum limit of 20% inclusive of cost of Capital.

In order to accomplish all above mandate figures and targets, let us assess the performances of the service holders of the nation and find out the ways of improving performance. In democracy every one has right to live. Nobody can be excluded from governance. So we are to rate the performance of all paid persons of the nation. We have made up FOUR simple Benches for offering seats to paid persons of Nation. The FOUR Benches are as follows:

Bench-1- In this Bench, Seats are available here for those who talks less and work more. Generally these people are honest and believe the theory “Work is Worship”. They use to commit for performing the job and do best of them. They perform better than their commitment. They believe in fair competition for the sustainable development of the nation.

Bench-2- In this Bench, Seats are here for those persons who work as per their talks. In this bench we find persons of accuracy in relation with their speech. These persons are average in nature. They believe in honesty in performance. Generally gentle men in approach. They believe in fair competition.

Bench-3- In this Bench, Seats are available for those who talks more and work less. These people are earning money by taking the advantage of situation. They are concerned with all work, but immediately they will be not concerned. These people foolishly think themselves that they are very clever which is not. They try to satisfy everybody but the result is Zero. They believe in “Work is Worship” in less confidence. They put questions on Competition after knowing what is competition. They fond up to play games but very least knowledge on games.

Bench-4- In this Bench, Persons to seat here are that they neither talk nor work. These are “Useless” paid persons. In the office, they use to sit but least concerned with official work. If somebody asks them any question in the official matter, they generally use the method to avoid. Sometime they remain absence from office for days together and then arrive at office at the end of month to receive salary. These persons are very irregular in nature. They do not know what they are doing. These category of people are addicted in narcotics.

So the above criteria of rating paid persons or say performance rating is very simple and can be accommodated but how to improve performance of the above category of persons is a question to answer. Let us find out the solution to question by taking suitable measures so that promotion from one bench to other will be very easy. The following are the procedure for promotion from one bench to other.

From Bench-4 to Bench-3

This 4th Bench Category of persons are to be administered closely, so that they will use to attend office. After few days of sitting in office, they will start to talk and will participate in the official matter, they will interfere in the discussion of their colleagues. They will be issued warning for not taking narcotics. Proper administration is required in the part of management to bring them to office so that they will be promoted to the third Bench. The fourth bench persons of no work-no talk with be promoted to more talk and less work Bench i.e., Bench No.3

From Bench-3 to Bench-2

The persons sitting in the third bench are to be administered closely and they are to be advised to maintain equality in their talking and working. After few days this third bench people will try to perform their duty as per their talk or commitment so that they will be promoted to the Second Bench where persons of equality in talk and work are sitting. This administration is not at all difficult in the part of management.

From Bench-2 to Bench-1

The second bench persons are of good integrity, they generally do not like to talk more. They perform duties as per their commitment. So this second bench persons are to be administered closely so that they will be inspired to work more, because they understand the time value of money. This is not at all difficult in the part of administrator to motivate them to work more by showing them the first bench where persons of high integrity are sitting. In the process they will be promoted to the first bench.

Good Bench-1 (performer is rewarded)

The first bench of persons who are talking less and doing more are of high integrity persons and believe in honesty in discharging official duties. These persons of first bench are really asset to the Nation.

We have no such standards in accountancy to measure and improve performance of the paid persons of a system. So time has come now to design standards to measure the quality of labour /manpower/person simply and comprehensively so that productivity of Nation will raise undoubtly. We have constraints to attend the 3rd CII Summit on IFRS Convergence with the theme “Final steps towards IFRS Convergence” scheduled to be held at The Taj Mahal Palace Mumbai on 18th May’2011 and would like to submit this notes before the esteemed expert Members of the Committee for kind consideration. This would be very much appreciated if our theme of accountancy helped to the esteemed Members for taking a conclusive decision on the subject matter of this article. We may wish all success of the ensuing Summit . We would also like to request before the esteemed Members of the Committee to have a look and reference on our last article i.e., “Fair Competition & Economic Development” which is now published in cmaindia.informe.com portal before arriving at any decision on the subject matter.

We express our thankful to Srj. Sethuraman Ramalingam, Chairperson of CII 3rd Summit on IFRS Convergence & CFO Cum ED of Tata Consultancy Services Ltd for sending the invitation to attend the Summit .

In the meantime election processes have been started for the 18th Councils of the apex body of accountancy (ICWAI) after release of notification in Gazette of India on dated 3rd Mar-2011. Experienced and eminent Members of the Professions have filed their nominations for Election to the 18th Council which is scheduled to be held on 3rd Jun-11. We have received letters and emails from different contesting candidates with request to cast the vote in their favour. Some experienced members have issued their “election manifesto” which is very much needful in the part of a voter. The issue election manifesto as per the regulation of ICWAI in the part of contesting candidates have not yet been regularised. However, on reply to the election manifesto of some new candidates, we wanted to know a simple answer “Why ICWAI”. The contesting candidates have not yet replied.

ICWAI, an apex statutory body of Accountancy set up & came into operation in the year 1959 after passing of CWA (Costs and Works Accountants) Act-1959 after a gap of 10 years of setting up ICAI (Institute of Chartered Accountants of India) which is another statutory body of Accountancy set up by an Act of parliament, just before the adoption of the Constitution of India in 26th Jan-1950. Then a common question arises if there was a body of Accountancy, then why the Law Makers thought for constitution of another accountancy body i.e. ICWAI even after passing of Companies Act-1956. What were the problems in the part of Law Makers in framing Companies Bill-1956? Whether there were any problems during the time of framing Companies Bill-1956? In our view the second statutory body of Accountancy ICWAI was constituted for the reasons as discussed herewith in the tile Subject “Accountancy: Watch Dog of Sustainable Development of Economy” and secondly to promote “fair Competition”, the concept of which is already communicated in the last month as published in cmaindia.informe.com web portal. We may hope Hon’ble Minister, Union Ministry of Corporate Affairs, Govt of India Srj. Murali Deora along with his good Secretary Srj. Mittal Saheb will redress the issue suitably by issuing required notification and with making necessary addition, deletion or alteration in the Companies Bill-2009 without any favour or fear but with maintaining mutual help and cooperation, so that the subject matter of this article will prove beneficial for the people of the Nation.

On 18th Mar-11, while august house of Odisha Legislative Assembly (OLA) is in live Session, OERC (Odisha Electricity Regulatory Commission), a quasi judicial and independent Body set up by an Act of Parliament issued anti-competitive tariff order for retail supply of electricity to the 4.5 crores people of Odisha after allowing huge losses over and above their own projections and approval. Inefficiencies, malpractices, abetment, conspiracy, mismanagement, indiscipline and anti-competitive functions which are avoidable in nature are all being passed on to the honest and esteemed consumers without showing any mercy. Just before one year, the people of Odisha had tolerated to carry the burden of hike in electricity tariff to the extent of 40% for only reason of constant tariff of last nine years where as the reason is not sufficient and People showed their simplicity and ignorancy. Is it natural justice? Is exploitation to illiterate, ignorant and simple people is allowed under democracy? The answer will be “No”, but require proper administration, analysis and communication.

In the last retail tariff order dated 18th Mar-11 of OERC, again retail tariff of electricity applicable to whole of Odisha has been raised more by 30% without any reason in an environment of anti-competitive functions. People of Odisha under the guidance of esteemed consumers association started to laugh by listening the news of hike of electricity tariff once again, because the consumers’ association representatives advised them in mobile messages that you are now free to thieve power. The Learned Members of OLA demanded withdrawal of tariff order and major Opposition INC put forth an adjournment motion in the house for discussion. The GOO (Govt of Odisha) replied in house that they will appeal before OERC for review of its order. GOO appealed then.

But in another event, Srj. Dilip Kumar Mohapatra Advocate and Consumer Activist of Odisha filed a PIL before High Court Odisha and prayed for withholding the above anti-competitive, illegal, unjustified and arbitrary tariff order. Hon’ble High Court of Odisha have been pleased to allow Stay order on the current tariff of OERC and hearing to the case is now going on. Being an Analyst of Power Sector, I know how injustice is being delivered to the innocent and illiterate People of Odisha, I also know how the mechanism of Odisha Power Sector is adding liability to the sustainable development of the State so also nation. The event enforced me to note the happenings and to communicate to the Union Government, being a citizen of a federal State.

Current year weather position as on end of April-11 is comparatively very good in comparison to corresponding month of previous last 10 years in at Sambalpur. His Lord has recognised our expressed Statement in the theory of development “Performer is rewarded”. CO2 (Carbon Di-Oxide) Gas is a gas can be eliminated within one year, if necessary steps are being taken today. We have a file on the subject of “Loss of Power distribution Sector is directly related with warming and pollution of Environment”. In this file we had expressed earlier after release of weather report by GOO that Odisha power sector is emissioning 68% of CO2 Gas to environment in compare to 58% of national level. In the three important seasons of last year summer, Rainy and winter we forwarded that file with our observations and notes for a consciousness of all concerned. Odisha media both electronic and print in the last year so also in the current year have presented the subject of environment regularly by different programs and they deserve for thankful. People of Odisha so also nation including Leaders, Administrators and Professionals have worked for lessening emissioning of CO2 Gas. The game has started now and is required to be moved properly for the sustainable development of the State so also Nation.

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