Need to move away from Balance Sheet.

Is the balance sheet really balanced?
Does the balance sheet prevent assumptions and presumptions?
Does the balance sheet reflect operational strength?
Do the stakeholders need to look beyond?
Is there an attempt to embed many requirements of stakeholders in a balance sheet?

The Answer to these questions will take us forward to looking beyond a balance sheet and also the fundamental flaws in the financial accounts.


Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government

Aligning cost audit with corporate governance

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government
http://www.thehindubusinessline.com/2007/04/19/stories/2007041902320900.htm
Aligning cost audit and corporate governance

A. N. Raman

India can be the trend-setter in aligning the cost audit framework to enterprise governance which anyway have considerable synergies.

At a recent international conference at Chennai in January, the Confederation of Indian Industry (CII) chief, Mr R. Seshasayee, felt that the country should go beyond the legal framework of corporate governance. A co-speaker from the Securities and Exchange Board of India echoed him, stating that the Indian corporate governance framework provides only the minimum and that it should move forward and, constantly, raise the bar of best practice.

Going by the proceedings of the Conference, the country is on the threshold of raising the bar on independent directors. The International Federation of Accountants (IFAC) has published a paper on the topic through its committee on the Professional Accountants in Business (PAIB) and, as usual, all eyes are on this umbrella organisation for harmonising accounting practices and auditing standards and anything else.

Interestingly, the Indian experience on cost audit fits well with the IFAC framework and India can provide a blueprint for better enterprise governance.

IFAC on Governance

In 2002, the IFAC Board asked PAIB to explore the emerging concept of enterprise governance with a particular focus as to why corporate governance often fails in companies and what must be done to ensure that things go right.

The PAIB brought out a report which defined Enterprise Governance as, "the set of responsibilities and practices exercised by the board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks are managed appropriately and verifying that the organisation's resources are used responsibly."

The report observed that "... heavy emphasis on corporate governance issues has been necessary in the light of recent scandals, it is important to remember that good governance on its own cannot make a company successful. Companies need to balance conformance with performance.

"This is a fundamental component of corporate governance."

IFAC framework

The PAIB report states that there are two dimensions to Enterprise Governance — conformance and performance — and these need to be in balance. Conformance, or corporate governance, addresses issues such as board structures and roles and executive remuneration.

Performance focuses on strategy and value creation. The focus is on helping the board make strategic decisions, understand the risks and the key drivers of performance and identify the major points of decision-making.

It is desirable to develop a range of best-practice tools and techniques, such as scorecards, that can be applied effectively.These can help the board focus on strategic direction. But these are not often dealt with as a coherent whole by the board, and there emerges what we would term an "oversight gap". The Task Force then proceeds with the mechanism of oversight with a framework of performance management system. According to IFAC, the following four pillars will raise governance beyond the legal conundrum:

Strategic oversight,

Enterprise risk management framework,

Process of mergers and acquisitions, and

Board performance.

The Task Force felt that there is no equivalent mechanism to the Audit Committee in the conformance dimension to ensure adequate oversight of the business dimension. This was supported by the findings of the case studies where strategic failure was the major issue. A strategy review committee can be set up for regular review of strategy and to access external advice. But the ultimate responsibility for strategy will be with the board.

On risk management, a more integrated approach has been favoured instead of a compliance or conformance orientation. This recognition of a performance-driven approach reconciles both:

The assurance requirements of the board and external stakeholders, that is, the business understands its risks and manages them actively, or conformance. The need to better integrate risk management in decision making at all levels, or performance.

Acquisitions and mergers should happen as part of a planned strategy identifying target business in identified markets. The following were identified as the key requirements for success:

Effective experienced full-time project management

Rigorous evaluation of synergies and effective implementation,

Effective due diligence,

Specialists with recent deals experience,

Early identification of risks with mitigating action, and

Clear integration plan.

The board needs to ensure that it is making the most effective use of the limited time and knowledge to achieve the stated objectives rather than simply complying with the letter of the corporate governance code. Consequently, attention is given to issues such as:

Performance evaluation for the board including the use of:

Performance measurement systems,

Board dynamics, and

Board design.

ALIGNING COST AUDIT WITH GOVERNANCE

The cost audit methodology, as structured originally under Section 233B of the Companies Act, had two perspectives:

the attestation of the cost structure, and

the efficiency review perspective, which is more methodology driven.

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

The emphasis was relatively less on efficiency review and, therefore, did not receive much impetus in the form of new auditing techniques and methodology. But now a new vision and strategy for cost audit mechanism are necessary.

According to the report of the working group on Companies Act, on corporate governance, desirable practices need legal support as well as evolution of internal standards — where the more progressive elements and the best practices are constantly updated to complement and enhance legal provisions.

Nations that have good corporate practices do not rely exclusively upon law. Conversely, those with poor records have never evolved internal codes of best practices. The question is how the objectives of cost audit can be revisited to suit corporate governance and evolve related practices with or without the required legal support.

Cost audit is a mechanism that verifies if the resources have been responsibly utilised and identifies in what processes resource wastage occurs.

The audit profession and the industry should accept the challenge of evolving a framework where there is a convergence of the objectives between enterprise governance and cost audit mechanism. Annually unitised cost structure attestation and its review will not be meaningful for the industry, which is now focussing even on hourly variations in process for cost control. Such concepts as Zero defect, PPM and Six Sigma are gaining credence in the manufacturing sector. There is a need to revisit the current methodologies and reporting frameworks.

Most organisations have well-oiled cost and management accounting systems mainly used for budget formulation, performance review reporting and identifying cost leaks and price fixing. Cost audit is selective in the sense that it is not applicable to all industrial units, as statutory audit, and to that extent can be construed as an infirmity.

Independent of this, the Cost Practitioner should be fully equipped to subserve the management's objectives of ensuring the operational effectiveness and make risk assessment and compliance control a part of the internal process. In its broad scope, the focus is not only on improving operational efficiencies, but strategic as well, having to cull out and provide information for managerial decisions on optimum utilisation of resources on a continuous basis and aid the organisation's growth objectives. Thus the cost audit methodology and deliverables can be aligned with the performance governance process.Cost audit reports todayfocus on addition or deletion to the net worth of shareholders.Value erosion happens when products and processes contain wasteful spending resulting in uneconomic cost structures and this can impact negatively on the net worth of the shareholders.

In essence, cost audit has a perfect synergy with the enterprise governance framework conceptualised by IFAC. India can be the trend-setter if it can align the existing cost audit framework to the requirements of the governance process. Industry leaders should take the lead in this rather than jettisoning the concept for short-term advantages.

National Award for management accounting 2005

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government

National Award
for Management Accounting (NAfMA) 2005

MANAGEMENT ACCOUNTING DEFINITION
Management Accounting may be defined as the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information (both financial and operating) used by management to plan, evaluate and control within an organisation and to assure use of and accountability for its resources.
Management Accounting, therefore, is an integral part of the management process. It provides information essential for
· controlling the current activities of an organisation;
· planning its future strategies, tactics and operations;
· optimising the use of its resources;
· measuring and evaluating performance;
· reducing subjectivity in the decision making process; and
· improving internal and external communication.

MANAGEMENT ACCOUNTING EVOLUTION

The following diagram, as extracted from the International Management Accounting Practice Statement (IMAPS 1) – Management Accounting Concepts of the International Federation of Accountants (IFAC) illustrates the four evolutionary stages of management accounting:



























Stage 1 – Prior to 1950, the focus was on cost determination and financial control. Hence, the main source of data was from financial statements which include Income Statement, Balance Sheet and Cash Flow statement. The use of methods such as Ratio Analysis, Financial Statement Analysis, Budgeting and other cost accounting technologies were very popular.


Stage 2 – 1950 to 1965, the focus had shifted to the provision of information for management planning and control. The aim then was to enable the management group to plan, control and take the best course of actions in their decision making processess. The use of management accounting techniques which could support decision analysis and responsibility accounting was introduced. Hence, the introduction of traditional methods such as Standard Costing, Cost-Volume-Profit (CVP), Break-Even Analysis, Transfer Pricing and Performance Measurement were accordingly increased during these periods.

Stage 3 – 1965 to 1985, attention was focused on the reduction of waste in resources used in business processess. Initially, this was made possible throught he elimination of “non-value-added activities”. Then, the use of mathematical formulas were popularised by some authors. Effectively, management accounting techniques used during these periods include Total Quality Management (TQM), Economic Order Quantity (EOQ model), Inventory evaluation models such as Last In First Out (LIFO), First In First Out (FIFO), Management Resource Planning (MRP) and Multiple Regression.

Stage 4 – 1985 to 1995, attention shifted to the generation or creation of value through the effective use of resources and technologies which examine the drivers of customer value, shareholder value and organisational innovation. The introduction of “relatively modern” management accounting methods such as Just-In-Time (JIT), Target Costing, Balanced Scorecard, Value Chain Analysis and Strategic Management Accounting are quite predominant during these periods.

Post 1995 – Will include reference to Srategic Processes and there will be an emphasis on ‘value at risk’ included in the processes.

Cost Accountants as Accountant in Income tax act-Thronging for a rightful place!

Management Accountant-an accountant of the future for Governance-Both Corporate world and the GovernmentWhy should Cost accountants be allowed to conduct Tax Audit u/s44AB of Income tax audit.1. Cost accountants are basically professional accountants withfocus on Cost management and accounting for managerial needs(A truemanagement accountant)2.ICWAI is a professional accounting body Established by a statuteway back in 1959.3.It is a founder member of International federation of accountants.4. Many of the members of this institute are working in compositeaccounting area (Financial and cost accounting) , as well as, manyof the practicing members are involved in Internal audit function,Cost accounting also depends on same set of original records whichis used to draw financial statements only the mode of visualizingthe expenditure and the method of treatment is different whichfinally measures the efficiency of the enterprise.5.Financial accounts has a singular goal of drawing profits out ofall incomes by way of charging all expenses. Its classification issimply whether an item is a capital/revenue/deferred revenue .Thatis the crux of the financial statements.Cost accounting is based on classification of expenditure intoDirect/indirect its concern is not profit-centric since it believesthat such simplistic assumption misleads the efficiency ofsegments/sub segments of the organization .The financial accountscan get the owners caught napping by building castles withoutfoundation. Cost accounting is truly a test of efficiency of thegoing concern and the dimensions of cost accounting are everevolving.6.When we talk interms of Tax collection we talk in terms ofallowances and disallowances of items occurring in the financialstatements . Infact the tax authorities are concerned with actualcost under the particular head and also in some cases whether suchis heads of expenditure are fanciful/decorator or factual. This onlyshows that tax authorities are at varience with financial accountingand its policies of classification of expenditure.A cost accountantis in a better position to interpret on Closing stock valuationwhich is an important component of profit valuation. A costaccountant again is in a better position to interpret Assetvaluation its position in depreciation etc. A cost accountant isagain in a better position to check the various allowances(investment) are being properly granted. Basically the concept ofcost is hidden in tax laws for allowance and disallowances of incomeand expenditure and this is where Taxman have to avail the servicesof cost accountant .
Added inputs by ssrn
One of the Direct Tax enactment i.e Estate Duty Actcontains the Definition of Accountant and CWAs were on par with CAs in thatAct. Though the ACT was abolished long back, CWAs are accountants. We canargue that when CWAs are accountants in one of the Direct Tax , how theycannot be accountant in another Direct Tax.originally framed form 3CD by CBDT, it contained somelines at the end of form stating that the form should be filled inaccordance with the generally accepted accounting principles/ standards setby the ICAI and ICWAI.It means the original intent of the govt is to recognise the CWAs in Incometax act also. It is diluted by way of explanation to the accountantdefinition.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
SME act.

7. (1) Notwithstanding anything contained in section
11B of the Industries (Development and Regulation)
Act, 1951, the Central Government may, for the
purposes of this Act, by order, notified and having
regard to the provisions of sub-sections (4) and (5),
classify any class or classes of enterprises, whether
proprietorship, Hindu undivided family, association of
persons, co-operative society, partnership firm,
company or undertaking, by whatever name called, -
Classification of
enterprises
(a) in the case of the enterprises engaged in
the manufacture or production of goods
pertaining to any industry specified in the
First Schedule to the Industries (Development
and Regulation) Act, 1951 as -
(i) a small enterprise, where the investment
in plant and machinery does not exceed five
crore rupees; or
(ii) a medium enterprise, where the
investment in plant and machinery is more
than five crore rupees but does not exceed
ten crore rupees;
(b) in the case of the enterprises engaged in
providing or rendering of services in relation
to any industry specified in the First Schedule
to the Industries (Development and
Regulation) Act, 1951, as –
(i) a small enterprise, where the
investment in equipment does not
exceed two crore rupees; or
(ii) a medium enterprise, where the
investment in equipment is more than
two crore rupees but does not exceed
five crore rupees.
(ii)
Explanation. – For the removal of doubt it is hereby
declared that the investment in land and building or
equipment, as the case may be, shall not be taken
into account while determining the investment in
plant and machinery or, as the case may be,

************************************************************
While the government has clearly expressed its concern very clearly in the SMEd bill 2005 it is for the ICWAI to comeup with a concept paper to present before the government on the Management Accountants role in SMEs.
From the industry angle i suggest to go for Inclusive Accounting Model(a varient of Integrated Accounting).
While financial accounting is concerned about the status of historical accounting on a particular date Cost and management accounting is vital for SMEs sustainable development whether the business horizon restricts to production of rawmaterial,agricultural produce or transcends to rendering service to the society.
A concept paper on inclusive accounting will go a longway to help SMEs realise the value of management accounting.

Role of management accountant in small and medium enterprises.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
Small and medium enterprises are backbone of an economy.Recognising this Governments have been focussing on their development and sustenance.

SME development bill 2005 is below:

THE SMALL AND MEDIUM ENTERPRISES DEVELOPMENT BILL, 2005
A Bill to provide for facilitating the promotion and development and enhancing
the competitiveness of small and medium enterprises and for matters
connected therewith or incidental thereto.
WHEREAS a declaration as to expediency of control of certain industries by
the Union was made under section 2 of the Industries (Development and
Regulation) Act, 1951;
AND WHEREAS it is expedient to provide for facilitating the promotion and
development and enhancing the competitiveness of small and medium
enterprises and for matters connected therewith or incidental thereto;
BE it enacted by Parliament in the Fifty-sixth Year of the Republic of India as
follows:-
CHAPTER I
PRELIMINARY
1. (1) This Act may be called the Small and Medium
Enterprises Development Act, 2005.
(2) It shall come into force on such date as the
Central Government may, by notification, appoint;
and different dates may be appointed for different
provisions of this Act and any reference in any such
provision to the commencement of this Act shall be
construed as a reference to the coming into force of
that provision.
Short title and
commencement
2. In this Act, unless the context otherwise requires,
-
(a) "Advisory Committee" means the committee
constituted by the Central Government under subsection
(2) of section 7;
(b) "appointed day" means the day following
immediately after the expiry of the period of thirty
days from the day of acceptance or the day of
deemed acceptance of any goods or any services by
a buyer from a supplier.
Explanation .– For the purpose of this clause,-
(i) "the day of acceptance" means,-
(a) the day of the actual delivery of goods or
the rendering of services; or
(b) where any objection is made in writing by
the buyer regarding acceptance of goods or
services within thirty days from the day of the
Definitions
65 of 1951
61 of 1981
2 of 1934
1 of 1956
1 of 1956
delivery of goods or the rendering of services,
the day on which such objection is removed
by the supplier;
(ii) "the day of deemed acceptance" means,
where no objection is made in writing by the
buyer regarding acceptance of goods or
services within thirty days from the day of the
delivery of goods or the rendering of services,
the day of the actual delivery of goods or the
rendering of services;
(c) "Board" means the National Small and Medium
Enterprises Board established under section 3;
(d ) "buyer" means whoever buys any goods or
receives any services from a supplier for
consideration;
(e) "enterprise" means an industrial undertaking or a
business concern or any other establishment, by
whatever name called, engaged in the manufacture
or production of goods, in any manner, pertaining to
any industry specified in the First Schedule to the
Industries (Development and Regulation) Act, 1951
or engaged in providing or rendering of any service
or services in relation thereto;
(f) "goods" means every kind of movable property
other than actionable claims and money;
(g) "medium enterprise" means an industrial
enterprise classified as such under sub-clause (ii) of
clause (a) or sub-clause (ii) of clause (b) of subsection(
1) of section 7;
(h) "National Bank" means the National Bank for
Agriculture and Rural Development established under
section 3 of the National Bank for Agriculture and
Rural Development Act, 1981;
(i) "notification" means a notification published in the
Official Gazette;
(j) "prescribed" means prescribed by rules made
under this Act;
(k) "Reserve Bank" means the Reserve Bank of India
constituted under section 3 of the Reserve Bank of
India Act, 1934;
(l) "small enterprise" means an industrial enterprise
classified as such under sub-clause (i) of clause (a)
or sub-clause (i) of clause (b) of sub-section (1) of
39 of 1989
section 7;
(m) "supplier" means a small enterprise, which has
filed a memorandum with the authority referred to in
clause (a) of sub-section (1) of section 8, and
includes, –
(i) the National Small Industries Corporation,
being a company, registered under the
Companies Act, 1956;
(ii) the Small Industries Development
Corporation of a State or a Union territory, by
whatever name called, being a company
registered under the Companies Act, 1956;
(n) "Small Industries Bank" means the Small
Industries Development Bank of India established
under sub-section (1) of section 3 of the Small
Industries Development Bank of India Act, 1989;
(o) "State Government", in relation to a Union
territory, means the Administrator thereof appointed
under article 239 of the Constitution.
CHAPTER II
NATIONAL SMALL AND MEDIUM ENTERPRISES
BOARD
3. (1) With effect from such date as the Central
Government may, by notification, appoint, there shall
be established, for the purposes of this Act, a Board
to be known as the National Small And Medium
Enterprises Board.
(2) The head office of the Board shall be at Delhi.
(3) The Board shall consist of the following members,
namely:-
(a) the Minister in charge of the Ministry or
Department of the Central Government
having administrative control of the small and
medium enterprises who shall be the ex officio
Chairperson of the Board;
(b) the Minister of State or a Deputy Minister,
if any, in the Ministry or Department of the
Central Government having administrative
control of the small and medium enterprises
who shall be ex officio Vice-Chairperson of the
Board, and where there is no such Minister of
State or Deputy Minister, such person as may
be appointed by the Central Government to
be the Vice-Chairperson of the Board;
(c) five Ministers of the State Governments
having administrative control of the
departments of small scale industries or, as
the case may be, small and medium
enterprises, to be appointed by the Central
Government to represent such regions of the
country as may be notified by the Central
Government in this behalf;
(d) the Administrator of a Union territory to
be appointed by the Central Government, ex
officio;
(e) the Secretary to the Government of India
in charge of the Ministry or Department of the
Central Government having administrative
control of the small and medium enterprises,
ex officio;
(f) five Secretaries to the Government of
India, to represent the Ministries of the
Central Government dealing with commerce
and industry, finance, food processing
industries, labour and planning to be
appointed by the Central Government, ex
officio;
(g) the Chairman of the Board of Directors of
the National Bank, ex officio;
(h) the chairman and managing director of
the Board of Directors of the Small Industries
Bank, ex officio;
(i) the chairman, Indian Banks Association, ex
officio;
(j) One officer of the Reserve Bank, not below
the rank of an Executive Director; to be
appointed by the Central Government to
represent the Reserve Bank;
(k) ten persons to represent the associations
of small enterprises and medium enterprises,
at least three of whom shall be
representatives of associations of women’s
enterprises, to be appointed by the Central
Government;
(l) two persons of eminence, one each from
the fields of economics and industry, at least
one of whom shall be a woman, to be
appointed by the Central Government; and
(m) one officer not below the rank of Joint
Secretary to the Government of India in the
Ministry or Department of the Central
Government having administrative control of
the small and medium enterprises to be
appointed by the Central Government, who
shall be the Member-Secretary of the Board,
ex officio.
(4) The term of office of the members, other than ex
officio members, the manner of filling vacancies, and
the procedure to be followed in the discharge of their
functions by the members shall be such as may be
prescribed:
Provided that the term of office of an ex officio
member shall continue so long as he holds the office
by virtue of which he is such a member.
(5) No act or proceedings of the Board shall be
invalid merely by reason of-
(a) any vacancy in, or any defect in the
constitution of, the Board; or
(b) any defect in the appointment of a person
acting as a member of the Board; or
(c) any irregularity in the procedure of the
Board not affecting the merits of the case.
(6) The Board shall meet at least once in every three
months in a year.
(7) The Board may associate with itself, in such
manner and for such purposes as it may deem
necessary, any person or persons whose assistance
or advice it may desire in complying with any of the
provisions of this Act and a person so associated
shall have the right to take part in the discussions of
the Board relevant to the purposes for which he has
been associated but shall not have the right to vote.
(8) Without prejudice to sub-section (7) the
Chairperson of the Board may, for not more than two
of the meetings of the Board in a year, invite such
Ministers of the State Governments having
administrative control of the departments of small
scale industries or, as the case may be, the small
and medium enterprises, or the Administrators of
Union territories and representatives of such other
associations of small and medium enterprises, as he
may deem necessary for carrying out the purposes of
this Act.
4. (1) The Central Government may remove a
member of the Board from it, if he –
(a) is, or at any time has been, adjudged as
insolvent; or
(b) is, or becomes, of unsound mind and
stands so declared by a competent court; or
(c) refuses to act or becomes incapable of
acting as a member; or
(d) has been convicted of an offence which, in
the opinion of the Central Government,
involves moral turpitude; or
(e) has so abused, in the opinion of the
Central Government, his position as a
member of the Board as to render his
Removal of
member from
Board
continuance in the Board detrimental to the
interests of the general public.
(2) Notwithstanding anything contained in subsection
(1), no member shall be removed from his
office on the grounds specified in clauses (c) to (e) of
that sub-section unless he has been given a
reasonable opportunity of being heard in the matter.
5. The Board shall, subject to the general directions
of the Central Government, perform all or any of the
following functions, namely:-
(a) examine the factors affecting the
promotion and development of small and
medium enterprises and review the policies
and programmes of the Central Government
in regard to facilitating the promotion and
development and enhancing the
competitiveness of such enterprises and the
impact thereof on such enterprises;
(b) make recommendations on matters
referred to in clause (a) or on any other
matter referred to it by the Central
Government which, in the opinion of that
Government, is necessary or expedient for
facilitating the promotion and development
and enhancing the competitiveness of the
small and medium enterprises; and
(c) advise the Central Government on the use
of the Fund or Funds constituted under
section 12.
Functions of Board
6. Subject to other provisions of this Act, the
Member-Secretary of the Board shall exercise such
powers and perform such functions as may be
prescribed.
Powers and
functions of
Member-Secretary
of Board
CHAPTER III
CLASSIFICATION OF ENTERPRISES, ADVISORY
COMMITEE AND MEMORANDUM OF SMALL AND
MEDIUM ENTERPRISES
65 of 1951 7. (1) Notwithstanding anything contained in section
11B of the Industries (Development and Regulation)
Act, 1951, the Central Government may, for the
purposes of this Act, by order, notified and having
regard to the provisions of sub-sections (4) and (5),
classify any class or classes of enterprises, whether
proprietorship, Hindu undivided family, association of
persons, co-operative society, partnership firm,
company or undertaking, by whatever name called, -
Classification of
enterprises
(a) in the case of the enterprises engaged in
the manufacture or production of goods
pertaining to any industry specified in the
First Schedule to the Industries (Development
and Regulation) Act, 1951 as -
(i) a small enterprise, where the investment
in plant and machinery does not exceed five
crore rupees; or
(ii) a medium enterprise, where the
investment in plant and machinery is more
than five crore rupees but does not exceed
ten crore rupees;
(b) in the case of the enterprises engaged in
providing or rendering of services in relation
to any industry specified in the First Schedule
to the Industries (Development and
Regulation) Act, 1951, as –
(i) a small enterprise, where the
investment in equipment does not
exceed two crore rupees; or
(ii) a medium enterprise, where the
investment in equipment is more than
two crore rupees but does not exceed
five crore rupees.
(ii)
Explanation. – For the removal of doubt it is hereby
declared that the investment in land and building or
equipment, as the case may be, shall not be taken
into account while determining the investment in
plant and machinery or, as the case may be,
equipment for the purposes of this sub-section.
(2) The Central Government shall, by notification,
constitute an Advisory Committee consisting of the
Secretary to the Government of India in the Ministry
or Department of the Central Government having
administrative control of the small and medium
enterprises, who shall be the Chairperson of the
Advisory Committee, not more than five officers of
the Central Government possessing necessary
expertise in matters relating to small and medium
enterprises and not more than two representatives of
the State Governments to be appointed by the
Central Government.
(3) The Member- Secretary of the Board shall also be
the ex officio Member-Secretary of the Advisory
Committee.
(4) The Central Government shall, prior to classifying
any class or classes of enterprises under sub-section
(1), obtain the recommendations of the Advisory
Committee.
(5) The Advisory Committee shall, after considering
Advisory
Committee
the following matters, communicate its
recommendations to the Central Government,
namely :-
(a) the level of employment in a class or classes of
enterprises;
(b) the level of investments in plant and machinery
or equipment, excluding the investment in land and
building, in a class or classes of enterprises;
(c) the need of higher investment in plant and
machinery or equipment, excluding the investment in
land and building, for technological upgradation,
employment generation and enhanced
competitiveness of the class or classes of
enterprises;
(d) the possibility of promoting and diffusing
entrepreneurship in a small or medium enterprises;
(e) the international standards for classification of
small and medium enterprises; and
(f) such other matters as the Advisory Committee
may think fit.
65 of 1951
61 of 1956
(6) Notwithstanding anything contained in section
11B of the Industries (Development and Regulation)
Act, 1951 and clause (h) of section 2 of the Khadi
and Village Industries Commission Act, 1956, the
Central Government may, while classifying any class
or classes of enterprises under sub-section (1), vary,
from time to time, the criterion of investment and
also consider criteria or standards in respect of
employment or turnover of the enterprises and
include in such classification the micro or tiny
enterprises or the village enterprises, as part of small
enterprises.
8. (1) Any person who intends to establish,-
(a) a small enterprise, may, at his discretion;
or
(b) a medium enterprise, shall,
file the memorandum of small enterprise or, as the
case may be, medium enterprise with such authority
as may be specified by the State Government under
sub-section (4) or the Central Government under
sub-section (3):
Provided that any person who, before the
commencement of this Act, has established –
(a) a small enterprise, whether he had or had
not obtained a registration certificate, may
after the commencement of this Act, at his
discretion, file the memorandum;
(b) a medium enterprise, whether he had or
had not, in pursuance of the notification of the
Government of India in the erstwhile Ministry
Memorandumof
small and medium
enterprises
of Industry (Department of Industrial
Development) No. S.O. 477 (E) dated the
25th July, 1991, filed an Industrial
Entrepreneur’s Memorandum Memorandum
shall, within ninety days from the
commencement of this Act, file the
memorandum, in accordance with the
provisions of this Act.
(2) The form of the memorandum, the procedure of
its filing and other matters incidental thereto shall be
such as may be notified by the Central Government
after obtaining the recommendations of the Advisory
Committee in this behalf.
(3) The authority with which the memorandum shall
be filed by a medium enterprise shall be such as may
be specified by notification, by the Central
Government.
(4) The State Government shall, by notification,
specify the authority with which a small enterprise
may file the memorandum.
(5) The authorities specified under sub-sections (3)
and (4) shall follow, for the purposes of this section,
the procedure notified by the Central Government
under sub-section (2).
CHAPTER IV
MEASURES FOR PROMOTION, DEVELOPMENT
AND ENHANCEMENT OF COMPETITIVENESS OF
SMALL AND MEDIUM ENTERPRISES
24 of 1938
18 of 1942
31 of 1959
52 of 1961
9. (1) The Central Government may, from time to
time, for the purposes of facilitating the promotion
and development and enhancing the competitiveness
of small enterprises and medium enterprises,
particularly of the former, by way of development of
skill in the employees, management and
entrepreneurs, provisioning for marketing assistance
or infrastructure facilities and cluster development of
such enterprises with a view to strengthening
backward and forward linkages, specify, by
notification, such programmes, guidelines or
instructions, as it may deem fit.
(2) Notwithstanding anything contained in the
provisions of the Employers’ Liability Act, 1938, the
Weekly Holidays Act, 1942, the Employment
Exchanges (Compulsory Notification of Vacancies)
Act, 1959 and the Apprentices Act, 1961, a State
Government may, by notification, with a view to
facilitating the graduation of small enterprises to
medium enterprises provide that the provisions of
those Acts shall not apply to small and medium
enterprises employing up to fifty employees in that
Measures for
promotion and
development
State.
10. The credit facilities to the small and medium
enterprises shall be progressive and such as may be
specified in the guidelines or instructions issued by
the Reserve Bank, from time to time, to ensure
timely and smooth flow of credit to such enterprises,
minimise the incidence of sickness among and
enhance the competitiveness of such enterprises.
Credit Facilities
11. For facilitating promotion and development of
small enterprises, the Central Government or a State
Government may, by order notify from time to time,
preference policies in respect of procurement of
goods and services, produced and provided by small
enterprises, by its Ministries or departments, as the
case may be, or its aided institutions and public
sector enterprises.
Procurement
preference policy
12. There shall be constituted, by notification, one or
more Funds to be called by such name as may be
specified in the notification and there shall be
credited thereto any grants made by the Central
Government under section 13.
Funds
13. The Central Government may, after due
appropriation made by Parliament by law in this
behalf, credit to the Fund or Funds by way of grants
for the purposes of this Act, such sums of money as
that Government may consider necessary to provide.
Grants by Central
Government
14. (1) The Central Government shall have the
power to administer the Fund or Funds in such
manner as may be prescribed.
(2) The Fund or Funds shall be utilised exclusively for
the measures specified in sub-section (1) of section
9.
(3) The Central Government shall be responsible for
the coordination and ensuring timely utilisation and
release of sums in accordance with such criteria as
may be prescribed.
Administration and
utilisation of Fund
or Funds.
CHAPTER V
INSPECTION OF SMALL AND MEDIUM
ENTERPRISES AND RELATED MATTERS
4 of 1936
34 of 1948
15. Notwithstanding anything in relation to
inspection contained in the Payment of Wages Act,
Inspection of small
and medium
63 of 1948
19 of 1952
53 of 1961
21 of 1965
39 of 1972
1936, the Employees’ State Insurance Act, 1948, the
Factories Act, 1948, the Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952, the
Maternity Benefit Act, 1961, the Payment of Bonus
Act, 1965 and the Payment of Gratuity Act, 1972, the
inspection of small and medium enterprises shall be
carried out in such manner and by such authority as
may be prescribed:
Provided that while prescribing the manner of
inspection under this section, the Central
Government shall have regard to the promotion of
self-regulation or self-certification by the small
enterprises and medium enterprises.
enterprises
16. Notwithstanding anything contained in any
enactment specified in section 15, every small and
medium enterprise shall maintain such records, file
such returns with such authority and in such forms
as may be prescribed.
Maintenance of
records and filing
of returns by
enterprises
CHAPTER VI
DELAYED PAYMENTS TO SMALL ENTERPRISES
17. Where any supplier, supplies any goods or
renders any services to any buyer, the buyer shall
make payment therefor on or before the date agreed
upon between him and the supplier in writing or,
where there is no agreement in this behalf, before
the appointed day:
Provided that in no case the period agreed upon
between the supplier and the buyer in writing shall
exceed seventy-five days from the day of acceptance
or the day of deemed acceptance.
Liability of buyer
to make payment
18. Where any buyer fails to make payment of the
amount to the supplier, as required under section 17,
the buyer shall, notwithstanding anything contained
in any agreement between the buyer and the
supplier or in any law for the time being in force, be
liable to pay interest to the supplier on that amount
from the appointed day or, as the case may be, from
the date immediately following the date agreed upon,
at nine per cent. plus the bank rate notified by the
Reserve Bank.
Date from which
and rate at which
interest is payable
19. The amount due from a buyer, together with the
amount of interest calculated in accordance with the
provisions of section 18, shall be recoverable by the
supplier from the buyer by way of a suit or other
Recovery of
amount due
proceeding under any law for the time being in force.
26of 1996 20. Notwithstanding anything contained in section
19, any party to a dispute may make a reference to
the Industry Facilitation Council for acting as an
arbitrator or conciliator in respect of the matters
referred to in that section and the provisions of the
Arbitration and Conciliation Act, 1996 shall apply to
such dispute as if the arbitration or conciliation were
pursuant to an arbitration agreement referred to in
sub-section (1) of section 7 of that Act.
Reference to
Industry
Facilitation Council
21. No appeal against any decree, award or other
order shall be entertained by any court or other
authority unless the appellant (not being a supplier)
has deposited with it seventy-five per cent. of the
amount in terms of the decree, award or, as the case
may be, other order in the manner directed by such
court or, as the case may be, such authority.
Appeal
22. The State Government shall, by notification,
establish one or more Industry Facilitation Councils,
at such places, exercising such jurisdiction and for
such areas, as may be specified in the notification.
Establishmentof
IndustryFacilitation
Council
23. The Industry Facilitation Council shall consist of
not less than three but not more than five members
to be appointed from among the following categories,
namely:-
(i) Director of Industries, by whatever name
called, or any other officer not below the rank
of such Director, in the Department of the
State Government having administrative
control of the small scale industries or, as the
case may be, small and medium enterprises;
and
(ii) one or more office-bearers or
representatives of small industry or enterprise
associations in the State; or
(iii) one or more representatives of banks and
financial institutions lending to small
enterprises; or
(iv) one or more persons having special
knowledge in the field of industry, finance,
law, trade or commerce.
(2) The person appointed under clause (i) of subsection
(1) shall be the Chairperson of the Industry
Facilitation Council.
(3) The composition of the Industry Facilitation
Council, the manner of filling vacancies of its
members and the procedure to be followed in the
discharge of their functions by the members shall be
such as may be prescribed by the State Government.
24. Where any buyer is required to get his annual
accounts audited under any law for the time being in
force, such buyer shall furnish the following
additional information in his annual statement of
accounts, namely:-
(i) the principal amount and the interest due
thereon (to be shown separately) remaining
unpaid to any supplier as at the end of each
accounting year;
(ii) the amount of interest paid by the buyer
in terms of section 18, along with the
amounts of the payment made to the supplier
beyond the appointed day during each
accounting year;
(iii) the amount of interest due and payable
for the period of delay in making payment
(which have been paid but beyond the
appointed day during the year) but without
adding the interest specified under this Act;
(iv) the amount of interest accrued and
remaining unpaid at the end of each
accounting year; and
(v) the amount of further interest remaining
due and payable even in the succeeding
years, until such date when the interest dues
as above are actually paid to the small
enterprise, for the purpose of disallowance as
a deductible expenditure under section 25.
Requirementto
specifyunpaid
amountwith
interest inthe
annualstatement
ofaccounts
43 of 1961
25. Notwithstanding anything contained in the
Income-tax Act, 1961, the amount of interest
payable or paid by any buyer, under or in accordance
with the provisions of this Act, shall not, for the
purposes of computation of income under the
Income-tax Act, 1961, be allowed as deduction.
Interest not to be
allowed as
deduction from
income
26. The provisions of sections 17 to 25 shall have
effect notwithstanding anything inconsistent
therewith contained in any other law for the time
being in force.
Over-riding effect
CHAPTER VII
MISCELLANEOUS
27. (1) The Central Government or State
Government may appoint such officers with such
designations and such other employees as it thinks
fit for the purposes of this Act and may entrust to
them such of the powers and functions under this Act
as it may deem fit.
(2) The Officers appointed under sub-section (1)
may, for the purposes of this Act, by order require
any person to furnish such information, in such form,
as may be prescribed.
Appointment of
Officers and other
employees
28. (1) Whoever intentionally contravenes or
attempts to contravene or abets the contravention of
any of the provisions contained in sub-section (1) of
section 8 or section 16 or sub-section (2) of section
27 shall be punishable, -
a) in the case of the first conviction, with fine
which may extend to one thousand rupees;
and
(b) in the case of any second or subsequent
conviction, with fine which shall not be less
than one thousand rupees but may extend to
ten thousand rupees.
(2) Where a buyer contravenes the provisions of
section 24, he shall be punishable with a fine which
shall not be less than ten thousand rupees.
Penalty for
contravention of
section 8 or
section 16 or
section 24 or
section 27
29. No court inferior to that of a Metropolitan
Magistrate or a Magistrate of the first class shall try
any offence punishable under this Act.
Jurisdiction of
courts
30. (1) The Central Government may, by
notification, make rules to carry out the provisions of
this Act.
(2) In particular and without prejudice to the
generality of the foregoing power, such rules may
provide for all or any of the following matters,
namely:-
(a) the term of office of the members, the
manner of filling vacancies, and the procedure
to be followed in the discharge of functions by
the members under sub-section (4) of section
3;
(b) the powers and functions of the Member-
Secretary under section 6;
Power to make
rules
(c) the manner in which the Fund may be
administered under sub-section (1) of section
14;
(d) the criteria based on which sums may be
released under sub-section (3) of section 14;
(e) the manner in which and the authority by
which inspection shall be carried under section
15;
(f) the records which may be maintained and
the form in which returns be filed, the method
of filing of returns, and the authority with
whom the returns be filed under section 16;
(g) the information to be furnished and the
form in which it is to be furnished under subsection
(2) of section 27; and
(h) any other matter which is to be or may be
prescribed under this Act.
(3) Every notification issued under sub-section (1) of
section 9 and every rule made by the Central
Government under this section shall be laid, as soon
as may be after it is made, before each House of
Parliament, while it is in session, for a total period of
thirty days which may be comprised in one session or
in two or more successive sessions, and if before the
expiry of the session immediately following the
session or the successive sessions aforesaid, both
Houses agree in making any modification in the
notification or rule or both Houses agree that the
notification or rule should not be made, the notified
order or rule shall thereafter have effect only in such
modified form or be of no effect, as the case may be,
so, however, that any such modification or
annulment shall be without prejudice to the validity
of anything previously done under that notification or
rule.
31. (1) The State Government may, by notification,
make rules to carry out the provisions of this Act.
(2)In particular and without prejudice to the
generality of the foregoing power, such rule may
provide for all or any of the following matters,
namely:-
(a) the composition of the Industry Facilitation
Council, the manner of filling vacancies of the
members and the procedure to be followed in
the discharge of their functions by the
Power to make
rules by State
Government
members of the Industry Facilitation Council
under sub-section (3) of section 23;
(b) any other matter which is to be or may be
prescribed under this Act.
(3) The rule made under this section shall, as soon
as may be after it is made, be laid before each House
of the State Legislature where there are two Houses,
and where there is one House of the State
Legislature, before that House.
32. (1) If any difficulty arises in giving effect to the
provisions of this Act, the Central Government may,
by order published in the Official Gazette, make such
provisions not inconsistent with the provisions of this
Act as may appear to be necessary for removing the
difficulty:
Provided that no order shall be made under this
section after the expiry of two years from the
commencement of this Act.
(2) Every order made under this section shall, as
soon as may be after it is made, be laid before each
House of Parliament.
Power to remove
difficulties
33. (1) The Interest on Delayed Payments to Small
Scale and Ancillary Industrial Undertakings Act, 1993
is hereby repealed.
(2) Notwithstanding such repeal, anything done or
any action taken under the Act so repealed under
sub-section (1) shall be deemed to have been done
or taken under the corresponding provisions of this
Act.

Role of management accountant In outcome budget.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
Indian government recently announced outcome budget as a measure of good governance.While welcoming it i would like to state that Management accountants have a greater role to play in the governance of the country .I am confident the institute will properly take up the issue and request the government to augment the recruitment of ICAS cadre in each department of the ministry and state governments and local bodies.
Management accountant have the cutting edge in the budgeting mechanism as it is a primary tool of Cost and management accounting.
Finance minister in his speech stated that the government budgets are not reflection of performance and in his words:

"I must caution that outlays do not necessarily mean outcomes. The people of the country are concerned with the outcomes."


Converting outlays into outcomes is a complex process, which differs from Ministry to Ministry and programme to programme. Some of
the important steps in this conversion process are as follows:-
· Outcomes to be specifically defined in measurable and monitorable terms; intermediate outputs should also be defined wherever
required.
· Standardising unit cost of delivery.
· Benchmarking the standards/quality of outcomes and services.
· Capacity building for requisite efficiency at all levels, in terms of equipment, technology, knowledge and skills.
· Ensuring flow of right amount of money at the right time to the right level, with neither delay nor "parking" of funds.
· Effective monitoring and evaluation systems.
· Involvement of the community/target groups/recipients of the service , with easy access and feedback systems.
Efficient conversion of outlays into outcomes would, therefore, require making the delivery systems effective with appropriate structures
and processes, strengthening financial management systems, increasing use of information technology, and meaningful involvement of all the
Ministries, Para -statals, State Govern ments, Local Bodies, Panchayat Raj Institutions, Self Help Groups etc., in critical decision making and
implementation processes.
This only means his intention has been to employ Cost and management accounting techniques to obtain better results of the efficiency of governance.CMAs are possessing necessary skills in this area and the government should recognise this potential and deploy them all areas of governance.

Role of management accountant as a skilled Negotiator.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
The globalised business environment demand negotiation skills from professionals specially Accountants.Management Accountant with the skills of analysing business situation,business processes,as an individual who concentrates more time on analysing activity and provide business solutions over and above accounting the income and expenses and presenting financial position is in a better position to collect ,analyse and postulate the results to situations ,to vet the Cost-benefit and also carry the process of value addition to the favour of his business associate.It would be better for a management accountant to prove his ability as and when it arises in the corporate world.

Critical tools with management accounting-please go through the new thread link for the purpose.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
Critical Tools Section.
http://management-accounting.blogspot.com

Enterprise risk management and role of management accountant

Management Accountant-an accountant of the future for Governance-Both Corporate world and government.

The underlying premise of enterprise risk management is that every entity exists to provide
value for its stakeholders. All entities face uncertainty, and the challenge for management is
to determine how much uncertainty to accept as it strives to grow stakeholder value.
Uncertainty presents both risk and opportunity, with the potential to erode or enhance value.
Enterprise risk management enables management to effectively deal with uncertainty and
associated risk and opportunity, enhancing the capacity to build value.
Value is maximized when management sets strategy and objectives to strike an optimal
balance between growth and return goals and related risks, and efficiently and effectively
deploys resources in pursuit of the entity’s objectives. Enterprise risk management
encompasses:
• Aligning risk appetite and strategy – Management considers the entity’s risk appetite
in evaluating strategic alternatives, setting related objectives, and developing
mechanisms to manage related risks.
• Enhancing risk response decisions – Enterprise risk management provides the rigor to
identify and select among alternative risk responses – risk avoidance, reduction,
sharing, and acceptance.
• Reducing operational surprises and losses – Entities gain enhanced capability to
identify potential events and establish responses, reducing surprises and associated
costs or losses.
• Identifying and managing multiple and cross-enterprise risks – Every enterprise faces
a myriad of risks affecting different parts of the organization, and enterprise risk
management facilitates effective response to the interrelated impacts, and integrated
responses to multiple risks.
• Seizing opportunities – By considering a full range of potential events, management is
positioned to identify and proactively realize opportunities.
• Improving deployment of capital – Obtaining robust risk information allows
management to effectively assess overall capital needs and enhance capital allocation.
These capabilities inherent in enterprise risk management help management achieve the
entity’s performance and profitability targets and prevent loss of resources. Enterprise risk
management helps ensure effective reporting and compliance with laws and regulations, and
helps avoid damage to the entity’s reputation and associated consequences. In sum, enterprise
risk management helps an entity get to where it wants to go and avoid pitfalls and surprises
along the way.

Events can have negative impact, positive impact, or both. Events with a negative impact
represent risks, which can prevent value creation or erode existing value. Events with
positive impact may offset negative impacts or represent opportunities. Opportunities are the
possibility that an event will occur and positively affect the achievement of objectives,
supporting value creation or preservation. Management channels opportunities back to its
strategy or objective-setting processes, formulating plans to seize the opportunities.

Enterprise risk management deals with risks and opportunities affecting value creation or
preservation, defined as follows:
Enterprise risk management is a process, effected by an entity’s board of directors,
management and other personnel, applied in strategy setting and across the
enterprise, designed to identify potential events that may affect the entity, and manage
risk to be within its risk appetite, to provide reasonable assurance regarding the
achievement of entity objectives.
The definition reflects certain fundamental concepts. Enterprise risk management is:
• A process, ongoing and flowing through an entity
• Effected by people at every level of an organization
• Applied in strategy setting
• Applied across the enterprise, at every level and unit, and includes taking an entitylevel
portfolio view of risk
• Designed to identify potential events that, if they occur, will affect the entity and to
manage risk within its risk appetite
• Able to provide reasonable assurance to an entity’s management and board of
directors
• Geared to achievement of objectives in one or more separate but overlapping
categories
This definition is purposefully broad. It captures key concepts fundamental to how
companies and other organizations manage risk, providing a basis for application across
organizations, industries, and sectors. It focuses directly on achievement of objectives
established by a particular entity and provides a basis for defining enterprise risk management
effectiveness.

Within the context of an entity’s established mission or vision, management establishes
strategic objectives, selects strategy, and sets aligned objectives cascading through the
enterprise. This enterprise risk management framework is geared to achieving an entity’s
objectives, set forth in four categories:
• Strategic – high-level goals, aligned with and supporting its mission
• Operations – effective and efficient use of its resources
• Reporting – reliability of reporting
• Compliance – compliance with applicable laws and regulations.
This categorization of entity objectives allows a focus on separate aspects of enterprise risk
management. These distinct but overlapping categories – a particular objective can fall into
more than one category – address different entity needs and may be the direct responsibility of
different executives. This categorization also allows distinctions between what can be
expected from each category of objectives. Another category, safeguarding of resources, used
by some entities, also is described.
Because objectives relating to reliability of reporting and compliance with laws and
regulations are within the entity’s control, enterprise risk management can be expected to
provide reasonable assurance of achieving those objectives. Achievement of strategic
objectives and operations objectives, however, is subject to external events not always within
the entity’s control; accordingly, for these objectives, enterprise risk management can provide
reasonable assurance that management, and the board in its oversight role, are made aware, in
a timely manner, of the extent to which the entity is moving toward achievement of the
objectives.

3
Enterprise risk management consists of eight interrelated components. These are derived
from the way management runs an enterprise and are integrated with the management
process. These components are:
• Internal Environment – The internal environment encompasses the tone of an
organization, and sets the basis for how risk is viewed and addressed by an entity’s
people, including risk management philosophy and risk appetite, integrity and ethical
values, and the environment in which they operate.
• Objective Setting – Objectives must exist before management can identify potential
events affecting their achievement. Enterprise risk management ensures that
Executive Summary
management has in place a process to set objectives and that the chosen objectives
support and align with the entity’s mission and are consistent with its risk appetite.
• Event Identification – Internal and external events affecting achievement of an entity’s
objectives must be identified, distinguishing between risks and opportunities.
Opportunities are channeled back to management’s strategy or objective-setting
processes.
• Risk Assessment – Risks are analyzed, considering likelihood and impact, as a basis
for determining how they should be managed. Risks are assessed on an inherent and a
residual basis.
• Risk Response – Management selects risk responses – avoiding, accepting, reducing,
or sharing risk – developing a set of actions to align risks with the entity’s risk
tolerances and risk appetite.
• Control Activities – Policies and procedures are established and implemented to help
ensure the risk responses are effectively carried out.
• Information and Communication – Relevant information is identified, captured, and
communicated in a form and timeframe that enable people to carry out their
responsibilities. Effective communication also occurs in a broader sense, flowing
down, across, and up the entity.
• Monitoring – The entirety of enterprise risk management is monitored and
modifications made as necessary. Monitoring is accomplished through ongoing
management activities, separate evaluations, or both.
Enterprise risk management is not strictly a serial process, where one component affects only
the next. It is a multidirectional, iterative process in which almost any component can and
does influence another.
Relationship of Objectives and Components
There is a direct relationship between objectives, which are what an entity strives to achieve,
and enterprise risk management components, which represent what is needed to achieve them.
The relationship is depicted in a three-dimensional matrix, in the form of a cube.

5
The four objectives categories – strategic,
operations, reporting, and compliance – are
represented by the vertical columns, the eight
components by horizontal rows, and an entity’s
units by the third dimension. This depiction
portrays the ability to focus on the entirety of an
entity’s enterprise risk management, or by
objectives category, component, entity unit, or
any subset thereof.
Effectiveness
Determining whether an entity’s enterprise risk
management is "effective" is a judgment resulting from an assessment of whether the eight
components are present and functioning effectively. Thus, the components are also criteria
for effective enterprise risk management. For the components to be present and functioning
properly there can be no material weaknesses, and risk needs to have been brought within the
entity’s risk appetite.
When enterprise risk management is determined to be effective in each of the four categories
of objectives, respectively, the board of directors and management have reasonable assurance
that they understand the extent to which the entity’s strategic and operations objectives are
being achieved, and that the entity’s reporting is reliable and applicable laws and regulations
are being complied with.
The eight components will not function identically in every entity. Application in small and
mid-size entities, for example, may be less formal and less structured. Nonetheless, small
entities still can have effective enterprise risk management, as long as each of the components
is present and functioning properly.
Limitations
While enterprise risk management provides important benefits, limitations exist. In addition
to factors discussed above, limitations result from the realities that human judgment in
decision making can be faulty, decisions on responding to risk and establishing controls need
to consider the relative costs and benefits, breakdowns can occur because of human failures
such as simple errors or mistakes, controls can be circumvented by collusion of two or more
people, and management has the ability to override enterprise risk management decisions.
These limitations preclude a board and management from having absolute assurance as to
achievement of the entity’s objectives.

Determining whether an entity’s enterprise risk
management is "effective" is a judgment resulting from an assessment of whether the eight
components are present and functioning effectively. Thus, the components are also criteria
for effective enterprise risk management. For the components to be present and functioning
properly there can be no material weaknesses, and risk needs to have been brought within the
entity’s risk appetite.
When enterprise risk management is determined to be effective in each of the four categories
of objectives, respectively, the board of directors and management have reasonable assurance
that they understand the extent to which the entity’s strategic and operations objectives are
being achieved, and that the entity’s reporting is reliable and applicable laws and regulations
are being complied with.
The eight components will not function identically in every entity. Application in small and
mid-size entities, for example, may be less formal and less structured. Nonetheless, small
entities still can have effective enterprise risk management, as long as each of the components
is present and functioning properly.

While enterprise risk management provides important benefits, limitations exist. In addition
to factors discussed above, limitations result from the realities that human judgment in
decision making can be faulty, decisions on responding to risk and establishing controls need
to consider the relative costs and benefits, breakdowns can occur because of human failures
such as simple errors or mistakes, controls can be circumvented by collusion of two or more
people, and management has the ability to override enterprise risk management decisions.
These limitations preclude a board and management from having absolute assurance as to
achievement of the entity’s objectives.

Internal control is an integral part of enterprise risk management. This enterprise risk
management framework encompasses internal control, forming a more robust
conceptualization and tool for management. Internal control is defined and described in
Internal Control – Integrated Framework. Because that framework has stood the test of time
and is the basis for existing rules, regulations, and laws, that document remains in place as the
definition of and framework for internal control. While only portions of the text of Internal
Control – Integrated Framework are reproduced in this framework, the entirety of that
framework is incorporated by reference into this one.
Roles.
(Compiled from net source).

Role of management accountant-A gist

Management Accountant-an accountant of the future for Governance-Both Corporate world and the GovernmeRole of Management Accountants. In 21st Century.



Management Accountants and Indian economy:
Management Accountants are Indispensable part of any Governance be it Business,Industry,service or Federal setup of Governments.The skills the Management accountants will acquire based on the revised curriculam and exposure Mindset will help Indian Economy in achieving its goals and stick to the road-map of Growth and social development.
The focus of management accountant is to maximize returns to the Stake-Holders,be it owners(managers/governors),Consumers,Lenders,and society at large.Management Accountant achieves this with twin tools in his hands one is Cost-minimisation(better read as Optimisation)and the other is Income maximization(Schematising Opportunities and selecting one or more than one on priority- yield(Government) criteria and Risk-return criteria(Business).
The financial Advisors and Budget officers in the Government of various states local bodies and in the centre are not Specialists and they are even posted from un-related Cadres.This is not to mean they are not in the learning Process some even deserve Certification of Merit from the ICWAI as recognition of their Management Accounting Skills(I hope the Council will consider this angle-even associate membership to a select group).
Indian Economy is regulated by Budget anticipating sources of revenues and prioritizing the expenditure schemes.The governance of the country at various levels is segmented into specialized ministries and departments.
Indian Economy also accounts its activity in Revenue-expenditure Statements Published Periodically.There are some departments which have adopted double entry system of Accounting. However Cost and Management Accounting in Government is submerged in the age-old techniques of the British-Raj often Neglected field.Here is were we have to start and CASB(USA)and public sector standards of IFAC and other related developments in developed worlds would be of guidance.
Project Accounting one of the Major thrust areas for Government(Social Cost-Benefit Analysis)is where management accountant can be of utmost important and The council should deploy research committee should come with concept paper on this aspect to be addressed to the government.
Management Accountant can play a vital role in establishing an egalitarian society by enabling better redistribution of wealth of nations with available techniques .He can be a better planner an objective Government Accountant and Analysts for Social-Cost-Benefit schemes.
Management accountant can thus be a piller for Governance of the country.
(Please see my brief note on Paradigm Income Study) .




Management accountants for business/Industry/Service sector.

Business:
The role of Management Accountant in business cannot be Over-emphasised whether large or small the business has to maintain records and keep accountants for the self of the proprietor/partners/requirement of statutes(Sec44AB of IT Act/VAT etc.).
As an accountant primarily the MA(read hence forth as management accountant)is in a better position to handle accounts of the Business and also help the proprietor in making sound decisions specially borrowing,stock maintenance etc)
MA should develop independent accounting firms and prove their worth by handling accounting assignments of the businesses.Businessmen of today are exposed to emerging trends of financial markets and would like to take opportunity to deploy surplus cash in markets and MA has a vital role as Portfolio manager to high-end and medium-end businessmen.
MA as Portfolio manager is always in a better position to manage funds.Since the prime concern of MA is Risk-return/Cost-benefit and priority-yield.
The MA with new skills acquired in Computerisation and being a functional specialist can help business in Synergising/shedding flabs/networking with external environment.
Industry:

The role of MA in Industry is well defined by statutes and practices however in various forms of Industry his role has got highlighted depending on compliance criteria.MA has to rise to the role of being a part of Corporate Governance in the industry and Various statutes have to enable his role for overall health of the industry.
MA at the shop-floor of a production facility is an Industrial Accountant with ability to engineer Cost of Product, Process and help in work-study,six-sigma,JIT and other industrial engineering techniques.
MA as an accountant has multi-dimensional role as a Book-Keeper/Cost-Analyst/Financial Planner and Tax Consultant adequate skills is inducted in the MA to handle in Dynamics of Industry.
MA as a Part of Corporate Governance.MA is an independent thinker and should keep himself abreast with latest developments in International/Internal environment as a primary analyst he is problem-solver as an expert in corporate laws he is an advisor on Compliance as a Cost-engineer he is an indispensable Guide for Shop-floor dynamics and as a financial analyst he is a true financial advisor.

The role of MA in service sector is evolving and much is needed for statutes to get amended and a step forward has already been made by making compulsory maintenance of Cost-records in utility companies.When we talk of services sector primarily they are classified to Industrial-support services like Power, Ports,Transport and shipping,Railways,Consulting firms,Insurance and Banks etc.There are also general utility companies available for everyone like telephone ,again personal banking and insurance,power,security,Defence etc.
All these service sector enterprise have their own definite goals and the services rendered involve cost and recovery aspects many service sectors in the form of infrastructure controlled by government which had its own system of monitoring cost and enjoyed monopoly status and budget support.But today the service sector dynamics has made businesses to think interms of Cost and price.
Most of the happening today is in the services sector and MA should develop skills in this area to prove for himself and the Profession.

MA in agricultural sector can be divided into to 1.Corporate farming.2.Medium-level Farmers with 100 acres to cultivate.3.Marginal Farmers.
With government considering Taxing of this groups there will be emerging need for compliance and the role of MA will evolve.MA already has a major role in setting minimum Support prices(agriculture price commission)Farm subsidy evaluation,Essential commodity production decision at national level.

In essence MA is an Accountant,Decision maker,Cost Engineer,Investment and Tax-planner,Auditor(statutory and tax),System(Functional) specialist,Government Accountant.Overall he is a part and parcel and Piller of Indian Economy



nt

Role Of Management Accountant in Project management and accounting.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
A management accountant is an ideal individual to be a part of Project management team right from the stage of conception till it is delivered to user.
A project now is an activity undertaken to strengthen the existing value for future or create addition in capacity or completely contracted for value with a different end user.What ever it may be a project is to create value and in that each project has a gestation and its benefit starts after completion depending on the demand forecast.A management accoutant possess necessary skill to carry out capital budgeting decision,monitor projects on Cost and time Overrun aspect and ensure its revenue realisation starts in time.
Most of the tool that a management accoutant employs are relevant to project accounting and management.
Large projects would ideally prefer to have management accountant to study project feasibility,fund management,monitoring of project schedule,and after the project starts operation to establish and maintain Cost-management system.

Role Of Management Accountant in Primary Sector-Producer companies and commercial agriculture business.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Governm
"Primary produce" means—
(i) produce of farmers, arising from agriculture (including animal husbandry,
horticulture, floriculture, pisciculture, viticulture, forestry, forest products, re-vegetation,
bee raising and farming plantation products), or from any other primary activity or
service which promotes the interest of the farmers or consumers; or
(ii) produce of persons engaged in handloom, handicraft and other cottage industries;
(iii)any product resulting from any of the above activities, including by-products of
such products;
(iv)any product resulting from an ancillary activity that would assist or promote any
of the aforesaid activities or ‘anything ancillary thereto;
(v) any activity which is intended to increase the production of anything referred to in
sub-clauses (i) to (iv) or improve the quality thereof;
(j) "Producer" means any person engaged in any activity connected with or relatable
to any primary produce;
(k) "Producer Company" means a body corporate having objects or activities specified in
Rules under section 214 and registered as Producer Company under this Act;
(l) "Producer institution" means a Producer Company or any other institution having
only producer or producers or Producer Company or Producer Companies as its
member whether incorporated or not having any of the objects referred to in Rules
under section 214 and which agrees to make use of the services of the Producer
Company or Producer Companies as provided in its articles.
***************************************************
A management accountant is an ideal individual with critical tools to analyse and report on the strategic decisions of a producer.Since the producer is often under the influence of Nature(its vagaries)government(its patronising of a particular produce)Lending institution(funding produce)and market(studying demand pattern)Management accountant is a true agricultural accountant for he does not limit his area to collect data on receipts and payments.
The nature of business here demands trend forecasting,crop pattern suggestion based on nature based cost forecast,Produce or discard decision seasonally,Use of fertilizer and other material based on monsoon pattern where cost control can occur.
Costing of handloom products,sericulture etc is highly suggested since these companies operate on a thin margin.
Setting up internal control and periodical audit by management accountant will go a longway in energising these business in the longrun.

Management Accounting and Corporate Governance.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
Role of Management Accountant in Corporate Governance.



Management accountant collects, classifies, generates information that helps management (The Board of Directors)to take vital and strategic decision which was not possible with the help of traditional Financial accountants.
Management Accountants are equipped with the tools that are required to steer an organization out of Bottlenecks.

Corporate Governance is the whole lot of activities carried out by persons who are vested with the power to define and steer the Path of the organization. It is the Stakeholders who have reposed confidence in the Governors(Directors) to take strategic decisions and also oversee the path of the Target they had designed(Mapped).

Factors that are common for Corporate Collapse:
1.Failure to ascertain information, Adequate enough ,Required to take a decision.
2.Failure of introspection and also to questioning the decisions taken.
3.Clear and Consistent Yardstick for measurement.
4.Weak Accounting and Management Accounting systems.-Risk-Return analysis Management Accountants role.
5.Inaccurate Cash-flow projections etc.
Though the list cannot be exhaustive it is clear that the collapse occurs mostly due to internal weakness rather than external causes.
Australian Stock exchange for instance has 10 point prescription for Corporate governance:
1.Recognise and Publish Board charter –Respective roles and responsibilities of the Board and the management.
2.Effective composition of the Board-Knowledge/Understanding/Independence.
3.Promote Ethics and responsibility in decision making.
4.Establish structure to independently certify financial reporting-CFO.Management Accountant Ideally.
5.Timely and balanced reporting of all material matters concerning the company.
6.Respect the rights of the shareholders and facilitate the exercise of the same.
7.Establish Risk oversight and management and internal control.-ERM a tool of Management Accounting.
8.Formally review and encourage board and management effectiveness.
9.Remuneration and responsibility matching.
10.Recognise legal and other obligation to stakeholders.

The Role of Strategic Audit in corporate Governance and management Accountants Role:
Audit of management strategies and initiatives is an important tool in the hand of Management Accountant.Management Accountant with his constant search for improvement in product,processes and income generation is in an ideal position to Review strategies and advice management .Management Accountant as a member of Audit committee can render valuable advice in decision making when alternatives come to the with proper risk-return analysis.Management Accountant has to establish proper systems and control of monitoring Costs and also study external environment that will add value to the business and sustain the business in the long-run.

Maintaining of Cost Records and auditing of the same on annual basis will help the nation in more-ways than one.Strategic Cost Accounting shall involve that part of Management Accounting that enables stakeholder realize optimum in a given situation by analyzing revenues with alternatives available for the product and suggesting a mix of receipts to sales and marketing department.A mix of good internal control(followed by Internal Audit),Financial Audit,Cost Audit, and management audit is a must with each focusing on core aspect of responsiveness to stakeholders.
To sum up management audit in Indian context will try to Unknot the conflicting interest of strategic decision suggest ways and means of Maximising revenue help constantly in providing information required to make strategic decisions.While doing so it will keep in mind the social responsibility,National commitments and environmental aspects in place.

Standards on Cost Accounting issued in Canada-List

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.

Role of Management Accountant in Corporate Governance.



Management accountant collects, classifies, generates information that helps management (The Board of Directors)to take vital and strategic decision which was not possible with the help of traditional Financial accounting.
Management Accountants are equipped with the tools that are required to steer an organization out of Bottlenecks.

Corporate Governance is the whole lot of activities carried out by persons who are vested with the power to define and steer the Path of the organization. It is the Stakeholders who have reposed confidence in the Governors(Directors) to take strategic decisions and also oversee the path of the Target they had designed(Mapped).

Factors that are common for Corporate Collapse:
1.Failure to ascertain information, Adequate enough ,Required to take a decision.
2.Failure of introspection and also to questioning the decisions taken.
3.Clear and Consistent Yardstick for measurement.
4.Weak Accounting and Management Accounting systems.-Risk-Return analysis Management Accountants role.
5.Inaccurate Cash-flow projections etc.
Though the list cannot be exhaustive it is clear that the collapse occurs mostly due to internal weakness rather than external causes.
Australian Stock exchange for instance has 10 point prescription for Corporate governance:
1.Recognise and Publish Board charter –Respective roles and responsibilities of the Board and the management.
2.Effective composition of the Board-Knowledge/Understanding/Independence.
3.Promote Ethics and responsibility in decision making.
4.Establish structure to independently certify financial reporting-CFO.Management Accountant Ideally.
5.Timely and balanced reporting of all material matters concerning the company.
6.Respect the rights of the shareholders and facilitate the exercise of the same.
7.Establish Risk oversight and management and internal control.-ERM a tool of Management Accounting.
8.Formally review and encourage board and management effectiveness.
9.Remuneration and responsibility matching.
10.Recognise legal and other obligation to stakeholders.

The Role of Strategic Audit in corporate Governance and management Accountants Role:
Audit of management strategies and initiatives is an important tool in the hand of Management Accountant.Management Accountant with his constant search for improvement in product,processes and income generation is in an ideal position to Review strategies and advice management .Management Accountant as a member of Audit committee can render valuable advice in decision making when alternatives come to the with proper risk-return analysis.Management Accountant has to establish proper systems and control of monitoring Costs and also study external environment that will add value to the business and sustain the business in the long-run.

Maintaining of Cost Records and auditing of the same on annual basis will help the nation in more-ways than one.Strategic Cost Accounting shall involve that part of Management Accounting that enables stakeholder realize optimum in a given situation by analyzing revenues with alternatives available for the product and suggesting a mix of receipts to sales and marketing department.A mix of good internal control(followed by Internal Audit),Financial Audit,Cost Audit, and management audit is a must with each focusing on core aspect of responsiveness to stakeholders.
To sum up management audit in Indian context will try to Unknot the conflicting interest of strategic decision suggest ways and means of Maximising revenue help constantly in providing information required to make strategic decisions.While doing so it will keep in mind the social responsibility,National commitments and environmental aspects in place.
(Compiled text)

Role Of Management Accountant in software Business.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.

In the ever changing technology the upbeat industry today is software.While hardware may grow arithmatically it is software business that grows geometrically.
Peculiarity of the industry is that it is an Information science.
It enables flow of information,storage of vast data,it helps organise data,it enables conversions of divergent mode of communication and data into a common storage mode and arrange for reconversion or user friendly versions.
The key to the success of the business is Speed,compatibility-universal application,delivery as a end-to-end solution(short life cycle and piracy are grave issues).
Constant and continuous innovation.
The problem in the industry is today more software are available as open source but how to recover cost then to sustain in the business and open source affect related business.
Costing of software should be primarily addressed from the angle of Life-cycle of the product,global applicability,and the time it will take to revise versions and also stand test to competitive position in the industry.Earlier examples to this type of industry with thumb rule pricing is probably entertainment business.It always pays to have a well established costing system in this industry.
Management accountant can play a key role in identifying cost and suggesting mode and method of recovery.
A schematic costing system will ensure right price for right product and avoid early recovery approach which is the thumb rule now and make the consumers ready to take these softwares and avoid opensource.
I think the software industry should understand the benefit of hiring a management accountant for this purpose.

Role Of Management Accountant in Insurance Business.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.

Insurance Industry in india until recently had been completely owned by government of India.
The nature of the Industry is that it acts on Uberrima fidae (utmost good faith)and tries to make good the loss of the one who insures risk.
Primarily Insurance was of two types one that covers Life risk and the other all risks other than life.
With liberalisation and transfering of insurance into private hands insurance business has delivered more innovative products like investment based risk cover.Primarily this is to generate funds for the industry but has mutual benefits.
An insurance product has the following cost components:
1.Cost of selling the product designed(one time cost and recurring resulting in discounted premium).
2.Cost of administration of the funds.
3.Cost of settling claims(survey and assessment).
4.Management and general administration.
The quantum of premium determination depends on the risk involved that is under cover ,probability of occurance ,of such risk, overboard and the costs above mentioned.
A management accountant is a business analyst primarily and an accountant at the bottomline so he is in the right position to help the insurance company to collect analyse and generate reports to the management on the Cost-benefit of an insurance product and a good Cost-management system will go a long way in guiding the sustenance of insurance business.

Management Accountant as a Financial Planner.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government.
With the development of Capital markets(Globally)and alsoRegulatory funds(pension fund etc)Mutual funds and merchant banking divisions and various other financial products the industry has been seriously in search for financial planners .
Here is where the role management accountants in this new dimension will prove quite helpful.Management accountant with his focus on value addition concentrates on Cost-benefit relation.
Portfolio management involves managing the cost of investment,analysing trends of movement of the portfolio-Risk return analysis,The frequency of re-parking at a given point in time to optimise return,Opportunities of covering risks(analysis of the same-say adopting hedging/futures etc),deciding on the quantum to be dislodged from the portfolio for reinvestment. So primarily these involves Cost-risk-return study and Management accountant possess the required skills to provide solutions to these situations more than any other brand of accountant or financial planners.

Economics of Money and Material.

Economics of Money and Material.

Management Accountant-an accountant of the future for Governance-Both Corporate world and the Government


Give and Take Economics-Can we Do away, with proper (Resource Mobilisation and Utilisation Mechanism.)Skewing of Money with Goods and Service

Monetary and Fiscal Policy Review.
Money policy=Supply of Money and Interest Rates.
Fiscal policy=Tax and Non-tax Revenue and currently disinvestment of assets.

Indian Economy
1.Population.2.Demographic Spread.3.Community Imbalance.4.Demand Gap.5.SupplyGap.6.Role of Government.7.TraditionalMoney and fiscal policy and Ramification8.New Approach.

Population.

•When we think of Money we have properties like -Medium,Measure,Standard,and Store.
•When we Think of Goods and Services we have Properties like –Consumption,Generation(Value addition),Destruction.
•When we Talk of Population we Have properties like- Purchasing Power,Disparity in Income and consumption Levels.
•All these Parameters are primary for giving directions to the economy.


Demographic Spread.

•Space of a Polity is varied from surplus to deficit and the populace also is spread across the land in a pattern from plenty to scarcity.
•Money is also spread ununiformly from plenty to scarcity.Money theory that so long as money is issued for production of wealth there is no inflation is an ideal .Economics of Imperfection partends theory and falsify economic principles.
•Goods and services are also impacted by erratic distribution.

Community Imbalance.

•Population also impacted apart from demography the community of plenty and community of Pauperity.
•Money also do not circulate and is cornered and linear equation of multiplier effect cannot be established where Hoard money is sometimes equal to circulated money.
•Goods and services are subject to artificial scarcity often and linear model of demand- supply is only ideal.

Demand Gap.

•Resource Mobilisation is a technique of filling the Demand Gap.
•Economies of deficit are often economies of surpluses.This imperfection is because of lack of identification and allocation.

Supply Gap.

•Resource deliverance is opposite to Mobilisation where Resource available wait for consumption.
•Matching of surplus with deficit is often not attempted.

Role Of Government.

•Government has Greater Role to play in resource assessment .
•Money theory that supply of money is equated with production of goods and services should be scrupulously employed and National Investment fund should be augmented with printing of notes and focused towards building additional capacity for production of goods and services.
•Money not in circulation is a waste since it circumvents multiplier theory and egalitarian distribution theory such moneys should be identified in terms of percentage.
•Taxes should not be the means of generating resources but a means of ensuring egalitarian distribution of circulating money by withdrawing the creamy portion from the haves and recirculating among the havenots.

Traditional money and fiscal policy Ramification.

•Money policy concentrates on readjusting inflation and interest rates.
•Fiscal Policy on public funding measures.
•These are good at macro economics in Ideal situation of perfect economy.
•New thrust areas should not on money and finance which is limitless for the economy but spread and idleness identification and hidden surplus in a deficit state.

New Approach.

•Resource Mobilisation should be on identification of net-surplus resources and channelising it to National investment.
•Identification of Non-performing money and estimating deviation and augmenting money supply to build resources.
•Taxes should be for identification and withdrawal of anticipated creamy money which will not perform linearly and redirecting it for performance.
•Thank you.