Archive for the ‘Reporting Standards’ Category

Suggestions- GACAP-CAS-Cost Information Presentation

Friday, 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.

Costing drives sustainability measurement in organizations

Sunday, 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. 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.

Cost Accounting Standards (CAS) - Justification

Saturday, September 18th, 2010


This is a post by CMA.Veerarghavan Iyengar MIMA,FICWA

Cost Accounting standards are basically an attempt to standardise the Cost Accounting practices among businesses and Governance. The Existing and Generally Accepted cost accounting practices are gradually attempted to be replaced with a set of documents in the nature of guidance to treatment of Transactions in the cost Accounting system of any enterprise,governance and charity.This will in turn standardise the practices of drawing general purpose cost statements for an entity, governance or charity and specifically standardise the entire Cost accounting practices in the entity, governance or charity.

General Purpose Cost Statements will generally address:
1.Total cost of production or service.(Average and incremental cost as a corollary)
2.Resource utilisation statement.
3.Wastage reports and recycling cost.
4.Production or service efficiency.
5.Project cost to benefit.
6.Variance reports on standard cost and budgeted cost.


IASB Framework - Financial Statements

Friday, July 24th, 2009

This is a guest post by CMA Devarajan Swaminathan. He has over 10 years post qualification experience in Accounting, Auditing, Finance as well as Management Accounting. He is the proprietor of Devarajan Swaminathan & Co - Cost Accountants.

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 The International Accounting Standards Committee Foundation (IASC Foundation) Constitution mentions about the IASB Framework twice, once in paragraph 29 and another in paragraph 43.

Paragraph 29 of the IASC Foundation Constitution reads like this:

Each full time and part time member of the IASB shall agree contractually to act in public interest and to have regard to the IASB Framework (as amended from time to time) in deciding on and revising standards.

Paragraph 43(a) of the IASC Foundation Constitution reads like this:The International Financial Reporting Interpretation Committee (IFRIC) shall interpret the application of International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and provide timely guidance on financial reporting issues not specifically addressed in the IAS’s and the IFRS’s with the context of the IASB Framework and undertake other tasks at the request of the IASB.The International Accounting Standards Board Framework or the IASB Framework or the Conceptual Framework is the framework for the preparation and presentation of Financial Statements.

The IASB Framework was approved by the IASC Board in April 1989 and adopted by the IASB in April 2001.

The purpose of the IASB Framework is to assist and guide the IASB to develop new or revised standards and to assist the preparers of financial statements in applying the standards and dealing with issues that are not specifically addressed by the Standards.The Framework does not have the force of a Standard. Therefore, in case of a conflict between the Standard and the Framework, the Standard will prevail over the Framework.

The Framework deals with:

  1. The objective of financial statements
  2. The assumptions on the basis of which the financial statements are prepared.
  3.  The qualitative characteristics that determine the usefulness of information in financial statements.
  4.  The definition, recognition and measurement of the elements from which the financial statements are constructed and
  5.  Concepts of capital and capital maintenance.


The Organization Structure of the IASC Foundation

Saturday, June 13th, 2009

This is a guest post by CMA Devarajan Swaminathan. He has over 10 years post qualification experience in Accounting, Auditing, Finance as well as Management Accounting. He is the proprietor of Devarajan Swaminathan & Co - Cost Accountants.

View CMA.Devarajan Swaminathan's LinkedIn profileView CMA.Devarajan Swaminathan’s profile

 IFRS or The International Financial Reporting Standards are the accounting standard norms that Companies globally have started to adopt. India is committed to prepare its financial statement based on IFRS from 2011 onwards. An attempt is made here to understand the DNA of the Organization, namely the International Accounting Standards Committee Foundation or the IASC Foundation, which has taken on the responsibility to frame International Financial Reporting Standards and how India is represented in this structure (at least till now).

 In writing this article references have been heavily drawn from the IASB website , IASC Foundation Constitution and the book IFRS Practical Implementation Guide and Workbook – 2nd Edition by Abbas Ali Mirza, Magnus Orrell, Graham .J. Holt, a John Wiley Publication.

 The International Accounting Standards Committee Foundation or the IASC Foundation is the parent body or the Organization.

A little back in History:

 From 1973 untill 2001 the body in charge was the International Accounting Standards Committee (IASC). IASC was created in 1973 between the professional accountancy bodies in 9 countries and from the year 1982 its membership comprised of all the accountancy bodies who were members of the International Federation of Accountants (IFAC). The principle significance of the IASC was to encourage national accounting standard setters around the world to improve and harmonize national accounting standards.

 The members of the IASC who were Professional Accountancy Bodies of the world delegated the responsibility to the IASC Board. The IASC Board was responsible for all activities including standard setting activity. The Standards adopted by the IASC Board were known as the International Accounting Standards (IAS).




 The IASC Foundation:

 The constitution of the International Accounting Standards Committee Foundation (IASC Foundation) was approved in its original form by the erstwhile International Accounting Standards Committee (IASC) in the year 2000 and by the members of the IASC at a meeting on 24th May 2000.

The erstwhile IASC Board had appointed a nominating committee to appoint the first Trustees. In execution of its duties the first trustees formed the International Accounting Standards Committee Foundation on 6th February 2001.

 There is a key difference between the erstwhile IASC and the present IASC Foundation. The members of the IASC were the accounting bodies of the world who were also the members of the IFAC. The IASC Foundation does not have such a relationship with these global accounting bodies.

The IASC Foundation is an independent not for profit private sector organization. Its Governance rests with its 22 Trustees.

It receives funding in the form of donations from Organizations, Accounting firms, Central Banks and Capital Market Regulators amongst others. The funding of the IASC Foundation is based on four principles.

In its Annual Report of 2007, the Foundation received funds of approximately 11.28 Million Sterling Pounds. 26 Countries contributed. Of these, 174,358 Sterling Pounds was India’s contribution. Contributors from India include the RBI, ICICI, Infosys, Grasim Industries, Bharti Airtel, Tata Sons, Satyam Computers, L&T and RIL.

It is interesting to note that International Accounting Firms contributed 3.24 Million Sterling Pounds approximately 28% of the Total Funding received by the Foundation. Firms included PWC, Deloitte, E&Y, KPMG, Grant Thornton, BDO and Mazars.

The governance structure within IASC Foundation comprises its key parts namely:

1.The Monitoring Board

2.The Trustees

3.The International Accounting Standards Board (IASB)

4.The International Financial Reporting Interpretation Committee (IFRIC)

5.The Standards Advisory Council (SAC)


The Monitoring Board:

Although the governance of the IASC Foundations rests with the Trustees, the Monitoring Board plays a pivotal role as the crucial link between the Trustees and the Public Authorities that have generally overseen accounting standard setters. This link between the Trustees and the Monitoring Board is established by way of a Memorandum of Understanding (MoU). Such a MoU will be made available to the public. A draft of the MoU is available on The process of getting the MoU signed between the Trustees and the Monitoring Board is already in process.

The monitoring board has the authority to participate in the process and the appointment of Trustees. It has the authority to overlook whether the trustees are discharging their duties in accordance with the constitution. The Trustees make an annual written report to the Monitoring Board.

Initially the Board comprise of

 1.A responsible member of the European Commission.

2.The Chair of the IOSCO Emerging Market Committee.

3.The Chair of the IOSCO Technical Committee

4.The Commissioner of Japan Financial Services Agency

5.The Chairman of the United States Securities Exchange Commission and

6.As an observer, the Chairman of the Basel Committee on Banking Supervision


India as is apparent is not represented on the Monitoring Board.

The Trustees:

The Trustees of the IASC Foundation are responsible for its Governance including funding. The Trustees are publically accountable to the Monitoring Board of the capital market authorities.

According to the present trustee distribution, the Trustees comprise of 22 individuals. 6 Trustees have been appointed from the Asia Oceanic region, 6 Trustees have been appointed from North America, 8 Trustees have been appointed from Europe (although the constitution has provided only for 6 from Europe), 1 Trustee from Brazil and 1 Trustee from South Africa (although the constitution provides for 4 from other regions).

India is represented by Mr. Mohandas Pai of Infosys.

The Trustees are initially appointed for a period of three years.

The trustees are, in addition to the governance of the foundation, responsible for the appointment of the members of the International Accounting Standards Board (IASB), the International Financial Reporting Interpretation Committee (IFRIC) and the Standards Advisory Council (SAC). They also have the power to terminate non performing members of the above board, committee and council.

The International Accounting Standards Board (IASB):

The IASB is responsible for all standard setting activities, including the development and adoption of IFRS. The IASB comprises of 14 members that is to be increased to 16 members. The members of the Board are a mix of practical experience in standards setting process, or as a user, or accounting, academia or from the preparer community. The Trustees appoint the members of the Board.

The present distribution of the Board is 6 members from Europe (although the constitution provides for 4), 4 Members from Asia Oceanic (the constitution provides for 4 members from Asia Oceanic), 3 members from North America (although the constitution provides for 4), 1 from South Africa (the constitution provides for 1 member from Africa) and 1 from Brazil (the constitution provides for 1 member from Latin America). That takes the tally to 15 members.

The constitution also makes it amply clear that the work of the IASB will not be invalidated by its failure at any time not to have representation in accordance with the geographical allocation laid down in the constitution. Members of the IASB are appointed for a term of up to 5 years, renewable once.

Mr. Prabhakar Kalavarcherla is a member of the ICAI so can be said to represent India.

At the time the IASC Foundation was constituted first, the IASB adopted all IAS issued by the erstwhile IASC. The existing IAS continues to be operative till the extent it has not been amended or withdrawn by the IASB. New standards issued by the IASB are called the IFRS. Collectively IFRS includes both IAS and IFRS.

The International Financial Reporting Interpretation Committee (IFRIC):

The interpretative body of the IASC Foundation is IFRIC. It is responsible for developing guidance on the interpretations of the application of both the IAS and IFRS. Such guidance on interpretation would be on financial reporting issues not specifically dealt with in the IAS and IFRS. It would also be on those issues where there are conflicting or divergent interpretations in the absence of an authoritative guidance.

IFRIC comprises of 14 members appointed by the Trustees for a renewable period of three years. No specific geographical allocations have been spelt out in the constitution.

Going by the profile of the existing members that comprise the IFRIC it is apparent that the committee does not have representations from India.

The constitution provides that the Trustees, as they deem necessary, appoint non voting observers representatives of the regulatory authorities who shall have the right to attend and speak at the meeting. Accordingly, IOSCO (International Organization of Securities Commission) and European Commission are presently the Observers.

Standards Advisory Council (SAC):

The members of the SAC are appointed by the Trustees. The objective of the SAC is to advice the IASB on agenda decisions and priorities. The constitution provides that the council may comprise of 30 or more members. No geographical allocations have been specified. Members appointed on the council would represent a wide group of organizations and individuals who are affected by or with an interest in international financial reporting.

Conclusion:With so many organizations, institutions, individuals, countries that are participating in this exercise of creating an Organization that will eventually issue Reporting Standards that will be adopted globally, it remains to be seen how the various committees, councils, trustees steer away from the political pushes / compulsions to have a high quality standards drafted and issued. The IASC Foundation has a Conflict of Interest Policy in place but the same was not available on their website for download and for me to include it here. India has to increase its participation in the entire process to ensure that its interest is addressed appropriately.