& COMPLIANCECOST AUDIT

l UsefUlness of Cost AUdit RepoRt in exCise AUdit

l new MeChAnisM of Cost AUdit And CoMpliAnCe A sAnjeevAni

l Costing CARe while CARing Cost

the institute of Cost Accountants of india(Statutory body under an Act of Parliament) www.icmai.in

SPECIAL FOCUSinside Cost ACCoUnting CAnnot be UndeRestiMAted: jUstiCe lAhoti

theManageMentaccountantTHE JOURNAL FOR CMAs AUGUST 2013 VOL 48 NO. 8 `60

890 the management accountant auguSt 2013

1. Mr Sachin Pilot, Honble Minister of State for Corporate Affairs (I/C), Dr. Rana Kapoor, President, ASSOCHAM, CMA Rakesh Singh, the former President of the Institute at the National Conference on Companies Bill 2012, on 18 July, 2013 in New Delhi

2. Sitting on the dais from left CMA Sanjay Gupta, Chairman, WTO and International Affairs, Mr N Venkatram, Partner and National Leader for Audit and Enterprise Risk Services, Deloitte Haskins and Sells, Mr G P Madan, Co-Chairperson, ASSOCHAM, CMA Dr PVS Jagan Mohan Rao, Council Member, and Mr Pavan Kumar Vijay, Chairman, ASSOCHAM

3. Release of publication on Management by Consciousness by SAFIM. From left to right, CMA Sanjay Gupta, Council Member, CMA S C Mohanty, now President of the Institute, Mr R Bandyopadhyay, member of Central Administrative Tribunal and member SAFIM Advisory Board and former Secretary MCA, Justice Ramesh Chandra Lahoti, Chairman of SAFIM Advisory Board and Former Chief Justice of India, Mr O P Dani, Vice Chairman of SAFIM, CMA Dr P V S Jagan Mohan Rao, Council Member, and CMA Nisha Dewan, Joint Secretary of the Institute.

4. Inauguration of the Seminar on Governance by Inner Consciousness held on 13th July, 2013 in New Delhi. From left to right CMA S C Mohanty, the then Vice President of the Institute, Mr R Bandyopadhyay, member of Central Administrative Tribunal and former Secretary MCA, Justice Ramesh Chandra Lahoti, Chairman, SAFIM Advisory Board, CMA G B Rao, former President of the Institute, Mr O P Dani, Vice Chairman of SAFIM with other Council Members of the Institute

ICAI-CMA SNAPSHOTS

1

2

3

4

AUGUST 2013 The mAnAGemenT AccoUnTAnT 923

Cost accounting cannot be underestimated: justice Lahoti

This is a speech by Justice R C Lahoti at the National Seminar on Governance by Inner Consciousness organised by the Institute on 13 July 2013 in New Delhi

IT gives me immense pleasure to find myself associated with the inauguration of this national seminar on Gov-ernance by Inner Consciousness co-organized by ICAI, the Institute of Cost Accounts of India and SAFIM, Sri Au-robindo Foundation for Integral Management.

Ever since the dawn of human civilization, the Mind of Men has been dreaming of a perfect society. In its search the humanity has reached the day where we are living in an industrial and commercial globalism led by multination-al corporations and propelled by an increasingly efficient and sophisticated management and technology, especially information technology. Experience tells us that these are means of temporary success not an assurance of perfect so-ciety.

What is the cause of this failure? According to Shri Au-robindo ... to hope for a true change in human life without a change of human nature is an irrational and unspiritual proposition; it is to ask for something unnatural and unre-al, an impossible miracle . The futuristic vision of Shri Au-robindo has been the creation of a New Social Order. And, there enters the role of consciousness or inner conscience.

Let us be clear on the inter-relationship of conscience and consciousness. Conscience is an inner sense which tells us what is right and what is wrong. Consciousness is awareness of such sense. It is that awareness which enables exercise of discrimination by senses. Hence, the sane advice of the sages is: Be a master of your mind and a slave to your conscience.

SAFIM, a discreet unit of Sri Aurobindo Society, Pudu-cherry is founded on the commitment to disseminating a new paradigm of management which proposes to trans-form values by applying in practice the teachings of Sri Au-robindo and the Mother. Sri Aurobindo has said we do not want to exclude any of the worlds activities. Politics, trade, social organization, poetry, art, literature all will re-main; but all will be given a new life, a new form. If we are spread out everywhere as individuals, something no doubt

will be done; if we are spread out everywhere in the form of a Sangh (i.e. a collective body, a divine fellowship), a hun-dred times more will be accomplished. SAFIM is, therefore, stretching its arms to collaborate wherever it can with any group of individuals, preferably, the professionals, who have potential to advent a new world a new order, and a will-ingness to dedicate themselves to accomplishing this solemn objective. SAFIM has drawn upon the Western Management skills and technology and set down to restructure them with the touch of deeper spiritual philosophy of Sri Aurobindo acting as a catalyst. The core of this philosophy is: unless an individual learns to manage himself he cannot manage oth-ers. To do so the managers (professionals included) have to develop their inner potential and express themselves fully.

The switch over from the present materialistic society to a spiritualised society i.e. a new social order will not be ushered in either by a Royal Charter or by an Administra-tive Arbitor or by a Parliamentary Proclamation or even by sermons, preaching or slogans. The new social order of the Aurobindonian thought will be ushered in only in MEN the individual. A society that lives not by its man but by its institutions, is not a collective soul, but a machine, its life becomes a mechanical product and cease to be living growth. Therefore, the coming of a New Social Order must be preceded by appearance of increasing number of individ-uals who are no more satisfied with normal intellectual, vital and physical existence of men but perceive that a greater evolution is the goal of humanity.

For the New Social Order to descend, where the society would be full of peace, prosperity and pleasure, we need people with conscience. Conscience is that faculty of in-tellect, an intuition which enables distinguishing right from wrong. An inner conscience is the voice within. It is a de-batable issue whether such voice is ruled by reason or the voice over over-rules the reason. But one thing is certain that conscience is that voice which originates from within and warns us that somebody may be looking though you are all by yourself. How beautifully the great poet Krishna Behari Noor has put it in a couplet, which says: Main andhere main rahoon, ya ki ujale main rahoon,

justice R C Lahoti Former Chief Justice of India and Member, SAFIM Advisory Board

TAxATIONSPECIAl FOCuS

924 the management accountant auguSt 2013

SPECIAl FOCuS

Aisa lagta hai ki koi dekh raha hai yaro! I am delighted to see SAFIM and ICA having joined

hands to discuss certain aspects of Governance and creating right environment by realising the role of inner conscience as the tool of transformation. The importance of cost ac-counting as being central to the formation of Governmental and Corporate policies cannot be underestimated. Effective cost accounting assures efficiency and optimum utiliza-tion of scarce resources. Ever since cost accounting earned recognition it has been continuously contributing to the growth of the industrial and economic climate of the coun-try. No wonder the prime object of the Institute of Cost and Management Accountancy is to function as a powerful tool of management control in all the spheres of econom-ic activities. It seeks to promote and develop the adoption of scientific methods in cost and management accountancy. Often the Cost Accountant works in solitude dictated by none except by his own inner conscience, while formulat-ing opinions and dictating his notes. Looking at the signifi-cance of the profession and far reaching implications which it has on shaping the economic growth it would be apposite

to say that the conscience of a Cost and Management Ac-countant should be a sacred sanctuary where the supreme divine alone may be seated as a decision maker.

During the course of the day, the delegates will be delib-erating over the Conscious Governance - need of the hour, role of values in Governance and creating the right environ-ment. I would like to close by quoting the assurance of Sri Aurobindo in Savitri even if the struggling world is left outside, one mans perfection still can save the world. I hope that at the end of the day you find an answer to what the Mother had asked in one of her New Year Messages The world is preparing for a big change. Will you help?

i ) Dr. G.P. Gupta, Designing a New Social Order an Insight into Aurobindonian thought, published by Shri Aurobindo Society, Pondicherry, pg-11.

ii) Towards Tomorrow an introductory booklet, Sri Aurobindo Society, Puducherry, p.14

iii) Dr. G.P. Gupta, Supra, pg-11.iv) If you have liked the couplet then yet another two lines for a change: Jiska koi bhi nahin , uska khuda hai yaro, Main nahin kahta, kitabon main likha hai yaro! - Noor

R Bandyopadhyay Former Secretary, MCA and

Member, SAFIM Advisory Board

This is a speech by R Bandopadhyay at the National Seminar on Governance by Inner Consciousness organised by the Institute on 13 July 2013 in New Delhi

SalutationsWhy Unethical Behaviour We see that scandals and scams in present-time are on the rise. What has really changed? Individual ethics, organization ethics or societal ethics? We may observe many similarities in India and in the Western Countries individuals involved in recent scandals/scams.1. Every major actor was a highly skilled professional in his or her respective field.2. All of them also were very well off.3. They were highly professional people with very sharp in-tellect, and4. They were highly motivated people. With these combinations of high virtues that the people at the helm of affair possessed, yet the result was scams and

scandals. Therefore, it is true that effective implementation of an ethical ideal or concept requires two factors: creating an ethical consciousness and promoting ethical conduct and behaviour. But for the outer conduct and behaviour to be authentic, sincere and effective, it has to be a spontaneous expression of a corresponding inner state of consciousness.

In the Corporate Boardroom The principal role of the board of directors as repre-sentatives of the shareholders, is to oversee the function of the organization and ensure that it continues to operate in the best interests of all stakeholders. Given the complexity of todays organizations, that is no simple or straightforward task. Today, board effectiveness is a key performance driver of the Indian companies. With expectations of them continuing to increase, boards can take several actions to govern more effectively. Indian boards must move away from being a rubber stamp to being

Need of the hour to be dead honest: Bandyopadhyay

AUGUST 2013 The mAnAGemenT AccoUnTAnT 925

a strategic asset for the company. They need to set the tone from top in promoting a transparent culture that promotes effective dialogues among the directors, senior management, and various function and risk managers. Boards should look beyond the old boy network and select directors with indi-vidual areas of expertise, and invest on an ongoing basis on their formal and informal education. Independent directors should significantly contribute to the functioning of the board through requisite understanding of the company and the business. Boards must take a hard look at its own per-formance evaluation and enable continuous feedback and communication cycle. Effective boards build capabilities within themselves and their organizations that allow them to do both, protect ex-isting assets (compliance role), as well as, manage threats to future growth (strategy oversight role).

Inner Consciousness This level of Consciousness enables the human mind to make sense of the stimuli that it is capable of receiving from its environment with the help of mental conscious-ness. It includes three mental activities of feeling, willing and knowing. In the mental consciousness, thoughts propelled by external stimuli have not taken a specific shape; they are vague, amorphous and hence ineffective. But at the level of inner- consciousness, which develops in individuals as they physiologically grow, the mind is capable of interpreting the external stimuli and converting them into firm ideas, con-cepts, and knowledge and is ready for connecting the same with action. This level of consciousness consists of ones intelligence, i.e., thinking abilities which include logical, rational, ana-lytical comprehension, arithmetical and rational abilities and emotions i.e. feeling abilities which include: anger greed, fear, attachment, pride, hatred and jealousy etc. Aristotle posited an ethical system that may be termed self-realizationism. When a person acts in accordance with their nature and realizes their full potential, they will do well and be content. At birth, a baby is not a person, but a potential person. In order to become a real person, the childs inherent potential must be realized. Unhappiness and frustration are caused by the unrealized potential of person, leading to failed goals and poor life. Aristotle said Nature does nothing in vain Therefore, it is imperative for persons to act in accordance with their nature and develop their latent talents, in order to be content and complete. Happiness was held to be the ultimate goal. All other things, such as civic life or wealth, are merely means to the end. Self-realization, the awareness of ones nature and the developments of ones talents is the surest path to happiness. Aristotle asserted that man had three natures: Vegeta-

ble (Physical), Animal (Emotional) and Rational (Mental). Physical nature can be assuaged through exercise and care, emotional nature through indulgence of instinct and urges and mental through human reason and developed potential. Rational development was considered the most im-portant, as essential to philosophical self awareness and as uniquely human. Moderation was encouraged with the ex-tremes seen as degraded and immoral. For, example, courage is the moderate virtue between the extremes of cowardice and recklessness. Man should not simply live, but live well with conduct governed by moderate virtue. This is regarded as difficult, as virtue denotes doing the right thing, to the right person, at the right time, to the proper extent, in the correct fashion for the right reason. Important Aristotelian virtues are: Courage, Self-control, Generosity, Magnificence, High-mindedness, Gentleness, Friendliness, Truthfulness, Wittiness, and Modesty. The scams and scandals in corporations and the deterio-rating standards of officers occupying key positions and are responsible for controlling the growth and regulating the working of corporations have given rise to the need of a transparency practices for the formulations and reporting of financial policies of corporations. In India, in the wake of globalization perspectives, the practice of sound Corporate Governance has been gaining acceptance among Indian Corporations. The domain of Corporate Governance must take the view pertaining to its impact of economic activity at firm level on socio-economic development of the Country which, in India, has received a low priority. There are two important aspect of Corporate Govern-ance namely, Structural and Cultural. The Structural aspects of Corporate Governance deal with systems and processes, norms and regulatory mechanisms, policies and guidelines. It is observed that companies in India have started giving increasing emphasis on these areas. The cultural aspects require that the Indian Corporate Sector must put in efforts for creating a vision and mind-set among the top management to enable them to address towards integrated development involving the community and the environment at large. Which means the scope of Corporate Governance must be extended to include the assimilation of values in the members of the organization. Sensitization to ethical issues and sustenance of high ethi-cal standards by individuals and organizations assume para-mount importance. The attitudes, values, sentiments, rituals etc. bind people and societies together, and identity is necessary to generate the feeling of belongingness to particular society. In India, two things are important in the context of culture and tra-ditions: 1. The individuals acquire in the process of growing (pri-

926 the management accountant auguSt 2013

SPECIAl FOCuS

mary socialization) a strong need of family ties and affiliate relationship and have tendencies for dependencies and the like, and 2. The individuals are deeply influenced by values, atti-tudes and sentiments in the ancient writings, i. e. Our think-ing and feelings have been shaped by our readings about Buddha, Mahavir, Mahatma Gandhi, Vivekanand, Rajaram Mohan Roy, Shri Aurobindo, etc. It brings us to the question whether business ethics can be taught? I do believe that value formation starts much earlier than at the B-school level, though there is certainly a need for training, I would like to maintain that business ethics is a reflective discipline, and hence the need for innovative teach-ing methods, where students are actively engaged instead of being mere recipients of information. It cannot be stated better than in the words of Albert Einstein I believe, indeed, that overemphasis on the purely intellectual attitude, often

directed solely to the practical and factual, in our education, has led directly to the impairment of ethical values. To this extent, I think, there needs to be extensive compilation of thought-provoking case studies that encourage students to look at instances from wider stakeholders points of view, is-sues and conflicts; live cases on companies; case writing by students themselves and listening to peers; simulation games that put students into situations to require tough ethical de-cisions. I am of the view that good training can embed these values in daily decision-making by business managers. And, business schools are rightly the vehicles to ensure this. Finally, it is the need of the hour to be dead honest in our duties and it is the responsibility of each and every individu-al concerned to obtain the desired growth and development of our self as a whole otherwise our Future will not forgive us for our intentional misdeeds.

Thank you.

Need to awake professional ethics: CMA S C Mohanty, President, ICAI-CMA

This is a speech by CMA SC Mohanty at the National Seminar on Governance by Inner Consciousness held by the Institute on 13 July 2013 in New Delhi

FROM the Institutes side I am thankful to Mr Dani to associate us in this great venture to bring values to the human society which is the need of the hour

and we look forward to associate with the body to play our role which is mandate to create leaders with values, ethics so that those leaders can serve the society with sovereignty and ensuring happiness and peace.

I could realise it is not only the need of the society or the human to our external peace or the prosperity but at the end of the day you should have to bring inner conscious-ness.

I would like to share few of my teachings and learnings what I have acquire in the process as a human being. What I realise, we are now belonging to the last stage, KALYUG, where there is a fight not with man and non-man and ani-mals, there is a fight with man with himself. The inner con-sciousness is external comfort. This is the Kalyug. We have seen in 19th century we are the dependent, 20th century we became independent and this is the 21st century. We have to realise we cant survive without interdependence or collaboration.

We three Institutes met last month, President and Vice President and colleagues and we have taken decisions that there is a need to awake professional ethics and there is a need to awake quality service to awake specialise service to the society to ensure the inclusive society a society with prosperity.

We are blessed with a situation with Gandhiji but today we are moving towards what I should not mention we all know.

There is a need to correct the society to correct each and everyone of us. We the people, the blessed souls having a good education, good position. We are mandate to serve the society in different positions, but we should not forget there is a need and we are the only a trustee or agent of the socie-ty and we have to discharge our obligation and it have taken 10% from the society and I could always in state of mind to give back 90% to the society. So that the society will prosper and being the blessed souls and the best creature of the God. We can give a better days, a better opportunity to the next generation.

I assure from the Institutes point of view, we are deter-mine to work for the society, for the economy and what-ever the policy initiatives of the government bodies like Aurobindo Integral Management we will be associated with that and because we are mandate to create a society of leaders with human values and ethics who can serve the society and look after the economy for a better tomorrow.