Sunday, February 9, 2014

Series 2..Cost Accountants and Cost Records are not required....Why?

In my previous article I gave a part of the reasons behind which Cost Accountants and Cost Accounting is not required. I am thankful to all my readers for reading the same. This time I have got the 2nd part of it where one will clearly understand why we are being removed by simply increasing the limit of Turnover of a company by Rs.100cr and recently it has been shifted to product specific of Rs.100cr turnover. The net worth of the company needs to be Rs 5 to 500cr for which Cost Audit would be applicable.  Now let me take you to some number games through which I would be able to explain the real Game Plan and the Pains of the master minds behind this activity. Before that we have to go through some stories to understand the master minds.

Entrepreneurial dreams of Indian students were always on the front runner. The last biggest move was made by the Indian government to support and increase this dream into larges quantity.  The Union Budget proposing that corporate funding to incubators will come under the Corporate Social Responsibility (CSR) tag.  The move will also help corporations meet the CSR requirement in the new Companies Bill whereby they have to report a spending of at least 2%  of their net profit on CSR. This is also likely to prompt many top-tier education institutes to float their incubation centers. Industry watchers say the budget proposal will give a fillip to funding for on-campus incubators that encourage budding entrepreneurs to start their own ventures.
Numbers ?????
·         Historically the SME sector has over the year’s registered faster growth than the gross domestic product (GDP). While GDP grew 6.7 per cent in 2008/09 and eight per cent in 2009/10, the SME sector clocked 11.4 per cent and 11.6 per cent growth, respectively. There are 29.8 million enterprises in various industries, employing 69 million people. The sector includes 2.2 million women-led enterprises (7.4 percent) and 15.4 million rural enterprises (51.8 percent). In all, the MSME sector accounts for 45 percent of Indian industrial output and 40 percent of exports. Although 94 percent of MSMEs are unregistered, the contribution of the sector to India’s GDP has been growing consistently at 11.5 percent a year, which is higher than the overall GDP growth of 8 percent.

·         While the contribution to GDP remains 17 per cent, it is expected to touch 22 per by 2015 as per some Chamber of Commerce.
·         Adopting the latest IT tools and techniques can help India's small and medium businesses boost revenues by $ 56 billion, while also creating over a million jobs, according to a report by software giant Microsoft.
·         BCG surveyed Brazil, India, China, Germany and the US and found SME revenue could grow by a combined $ 770 billion in these five primary countries if more SMEs could achieve the growth rates of those SMEs that use modern IT tools


The New Company’s Bill 2013 has given another leeway where an individual, a Single Person can form a Private Limited Company.  Before this Bill came into picture last year we witnessed the following things:
·         IIT-Bombay has seen a steady growth in entrepreneurial ventures. About 25 per cent of the students did not sit for placements this year in IIT-B as they are likely to take the entrepreneurial route.
·         In IIT-Madras, too, there is a 20 to 25 per cent growth in the number of students floating their own ventures.
·         India has about 40 million small and medium businesses (SMBs) of which only around 500,000 are online. Once these rest of the SMBs comes into online business there would be stupendous growth in Revenues and Profitability of these units.
The Number Game Plan
·         Today The Institute of Chartered Accountants have has quite literally liberalized the passing out percentage to such an extent that today more than 30% students pass out every six months as qualified chartered accountants.

·         More than one lakh students join the chartered accountancy course every year with 45 to 50 per cent of them being girls. Last year as per news print data in Hindu Business line ICAI has around 2.10 lakh members at present.

·         Till February 2011 there were 83,664 practicing chartered accountants and the new chartered accounts are now joining jobs rather than going for practices since the later segment have become stagnant due to lack of opportunity. Also setting up a practicing firm needs an office space and the real estate cost have gone up substantially over the last couple of years.

Now current income condition of Chartered Accountants:

·         The return filing fees in 1990 was Rs1,500 and even now a CA cannot charge more than Rs2,000. The purchasing power of Rs1,500-Rs2,000 was far greater in 1990 whereas in 2013 it does not pay for a dinner for a family of four at a decent restaurant. The same is true for VAT.

·         The assessment proceedings have greatly reduced. In any case the same pattern. It was great value to charge Rs2,000 per hour in 1990 and we cannot increase the same by inflation rate. If Rs2,000 of 1990 has become Rs20,000 in value in 2013 Members (Chartered Accountants) cannot charge Rs20,000 per hour. 

·         A similar pattern follows for audit fees and certification fees. With much greater risk and responsibility thrown onto the auditors, the clients hate to increase fees. With so many CAs flooding the market, they are developing a rubber stamp culture where CA shopping is done to see who certifies at a lower rate—something like the notaries who run after you outside every court for getting the job done through them.
·         The articled clerks demand nothing less than Rs.5,000 per month, some of them protesting deduction of profession tax, which is a legal obligation on the payer! Cost of communication, power, systems, everything has gone up—but the fees remain fixed to 1990 levels.
·         Today a good fresher CA gets a CTC of Rs.4 lakh to Rs.6 lakh (these are among the lucky few) and a CA with 20 years experience in practice is not far off from that figure of income. This leaves quite a bitter taste in the mouth.
·         Clients of the CA do not like an increase in fees, traditional practice is getting redundant and does not have value—in fact it is losing monetary value.
Why Cost Accountants and Cost Accounting are Not required….Analysis……
I hope you have read the above statistics and now according to the New Companies Bill 2013 many new Single Owner Based Private Companies would be formed.  These new companies would be classified as Small and Medium Enterprise and their start up business profits, Turnover would be less than Rs.100cr even their Product Turnover would be Less than Rs.100cr. Now if Cost Accountants work for these organizations and does Cost management and Cost Audit Record Rules needs to adopt then Chartered Accountants would not find any space here. Currently Chartered Accountants are struggling with their growing Member base and their incomes are dropping. Hence If the ‘Current New Draft Guideline is being Established’ then   Chartered Accountants would find substantial business opportunities in the coming years. Now as per the current statistics which says that Entrepreneurship comes under Corporate Social Responsibility then the number of current SME which is 26 million would double in the next 5 years hence there will be huge opportunity for the Chartered Accountants to survive by Killing Cost Audit and Cost Records and Cost Accountants. With the Blessings of the New Companies Bill Chartered Accountants would find many new start up firms to increase their earnings. The Huge Final Passed Chartered Accountants numbers would find Earnings by Removing  Cost Audit and Records from SME segment.

The Slab for Cost Audit have been hiked so that Chartered Accountants  professional gets some space to breathe and many industries have been abolished since Small and Medium Segment caters to many industries. The list below will speak for the rest where you can find what benefit goes to Chartered Accountants by reducing the number of industries under the Cost Audit. Also note that a single product of Rs.100 cr in this segment is a far distance game hence Chartered Accountants are the biggest benefactors
In my next article I will come up with the Huge Segment Definition and Industrial landscape of SME in India and why Cost Accountants are required.

0 comments:

  © Blogger template 'Minimalist H' by Ourblogtemplates.com 2008

Back to TOP