Cost Management – The Lifeline of Business and Economy

A small rice manufacturing unit in Kerala once went through a dilemma when they did not see any profit coming even when the sales were shooting up. After a detailed observation of the finances of the company, the organization couldn’t find the area where it was facing an issue. To understand the same and to mitigate it the organization asked for the professional help of a cost accountant. The challenge before the cost accountant here was to find out the area which was creating financial leakage to the organization and to suggest a plan of action to overcome the same. 

After a careful evaluation and detailed discussions with the management team and the workers or employees of the manufacturing unit, the cost accountant came up with two findings. One, the company is selling its products at a wholesale quantity which are being purchased by small retailers who repack the same and sell at more profit. But this was not affecting the company in any way since the sales were not affected at all. In fact, the same showed an upward trend. 

The second finding, however, was of more importance and it was the root cause of the company earning less than it was expecting. In order to reduce the material cost, which consists of a huge part in the total direct cost, the new management purchased rice from new suppliers at a very cheap price. However, in doing so they compromised on the quality. Instead of buying fully dried rice for flouring purposes they bought rice half dried, which required an additional process of drying and in doing so the quantity of the rice reduced further, which affected the yield of the product. A simple decision made by the company to reduce the costs without proper planning and supervision thus backfired resulting in a loss to the company in terms of profit and reputation altogether.

Whatever may be the business one is doing, it involves expenditure on manpower or labor, material and other items required for manufacturing and distributing the product or services. It is possible that in case of business there exists a chance of wastage at each stage, in order to ensure that machine doesn’t remain idle, no labor is under paid, by-products are utilized effectively and to ascertain the cost systematically, cost accounting and management is inevitable to any organization.

A good costing system ensures that the overall productivity of the organization is improved and thereby provides growth to the national economy as a whole. The wrong mixture used, the wrong quotations made, the wrong choices or options selected during the business won’t be reflected in the P&L or Balance Sheet. However, a cost accountant dives into every segment of the organization and points out specific areas which requires further focus and control in order to make the company/ entity profitable.

“Watch the cost and the profit will take care of themselves.” These are the words of famous Scottish-American industrialist and Philanthropist Mr. Andrew Carnegie. The words of Mr. Carnegie though seem simple, elegantly depicts the need of focusing on the cost one bears whether in their personal life or in a business environment. 

The profit or sometimes referred to as the Margin of a product or a business depends primarily on two factors, the revenue it earns and the cost it incurs. Unless there is a nexus between the two, profit maximization is not possible. The concept of cost itself is very complicated and consists of wide meaning. While most people use the term cost and expense synonymously, the difference between both the terms is very huge. While in common parlance it is one and the same, in an elaborate scenario cost is more like a one-time settlement made and expense is a recurring one in nature. 

The usage of the right cost in the right context is extremely important for a sustainable growth of the business and the economy. From the very basic concept of the steady cost or correct cost for a product or service, the concept of cost has evolved into what we now know as the cost optimization or cost management. The ever-changing economy fueled by the new and advanced technologies requires a more in-depth focus on the cost concept being put into use and the same needs to be evaluated on a timely basis. Today’s cost concept should therefore be more adaptive and fit to cope with the changing requirements. This is where the need for and importance of a cost accountant in the business is required.

A cost accountant is not like a regular accountant who looks after your books of accounts or financial statements to give you an idea about the financial position of the organization as on that date or period. In fact, a cost accountant’s duty or role is widely spread into various horizons of a business. The role of cost accountant starts from the very beginning of the development of a business idea and it continues throughout the business lifecycle. 

The development of cost accounting as a separate branch of study itself came because of the limitation that financial accounting bears. That to say, financial accounting simply investigates the outer layer of the whole accounting concept where they prepare reports to help the management control in general and quantitative ways the various functions of business. However, it fails to evaluate the efficiency of the organization and to direct the business in a detailed way, areas where it trails and how the same can be overcome. Thus it can be said that cost accounting comes where financial accounting fails. Cost Accounting, unlike financial accounting, is a detailed examination of the cost part of an organization by analyzing and evaluating the organization in deep and formulating strategies and suggestions to ensure the organization is not making any unnecessary cost and thereby ensuring more profitable at the same time less exploitative business environment.

The Applicability of cost accounting is such wide that it can itself create a healthy economy if used or implemented carefully and seriously, unfortunately it is really saddening to observe that in a country like India, having vast opportunity and huge potentials with a thirst of becoming $ 5 trillion economy in the nearest future, neither the cost management or the cost accountants are getting the importance they required and in most of the cases they are being neglected.

Even today, a misconception is there in place among the public that cost reduction is what cost management is. Cost management focuses primarily on cost control and not on cost reduction. The maintenance of a balance between the cost and revenue is the ultimate key to profit. Proper cost management is only possible when a qualified cost accountant is placed in the company to look after the business performance as a whole and direct the business in the right path through maintaining the cost and revenue nexus.

In words of famous American engineer, professor, physicist and inventor, Mr. Robert. H. Goddard, “The reason many people fail is not for lack of vision but for lack of resolve and resolve is born out of counting the cost.” The post covid era has been really challenging for a country like India. Though the GDP growth and other related parameters are giving a positive outlook to the economy, the trauma from the past still exists. The continuing act of employee termination in the name of cost cutting is not going to make any benefit to any organization. It can only result in forcing the remaining employees to get exhausted while pushing their limits to achieve the organizational goals, ultimately resulting in poor quality workforce and services.

It is high time for a country like India to give focus on the cost and its management. The service of a cost accountant is neither an expenditure nor a cost. It is in all aspects an investment. To think that my company does have a Chartered Accountant in place and therefore there is no need for a Cost Accountant is simple ignorance. The importance of cost is such huge that a qualified Cost Accountant in any organization will serve as an asset in the long run. The more one delays in understanding and accepting the same and recognizing the contributions of a Cost and Management Accountant (CMA) in their organization, the is the chance for a county to achieve its goals. Without proper cost management, no economy can function to its full potential.

CMA Hrishikesh R Nampoothiri

mail id: hyadu12345@gmail.com

Mobile Number: +917560938431

Indices - Are they Reliable?

The world economy is currently going through a tough time. Even though we haven’t yet recovered from the pandemic, the economy has been showing the symptoms of revival in many major sectors even in India. However, this has been further under consideration and observation owing to various situations which are happening all around the world. The Ukraine-Russia Conflict, The Sri Lankan Crisis, and the emergence of the XE variant of Covid all are affecting the economic well beingness of every country in the world.

Sri Lanka, one of the most beautiful countries in the world is suffering one of its greatest nightmares. The economic crisis that Sri Lanka faces today is mainly because of two major reasons which are the shutting of the tourism sector during the covid period and the sudden change in the country’s policy of changing the agriculture sector from chemical farming into organic farming. The two major industries which contributed to Sri Lanka’s GDP, that is, Tourism and Tea were affected seriously due to this. Along with that, the lack of remittance from foreign countries also made the countries' situation worse. The Loans and advances the country raised in the past number of years from various countries, primarily China, also backstabbed the country during this crucial time. China who is Sri Lanka’s moneylender is now holding back the country’s recovery from the economic crisis and is also hesitant to provide any further financial assistance.

According to the latest working paper published by the International Monetary Fund, India has almost eradicated and brought down consumption inequality to its lowest levels in 40 years through Public Distribution System. According to the paper, the proportion of people living in extreme poverty remained below 1% even during the pandemic period, thanks to the in-kind subsidies especially the ration provided by the government through PDS. India’s wheat export for the April to October period during 2021-22 surpassed $ 872 million from $ 135 million for the same period in 2020-21. While many of the countries in the world witnessed a severe shortage in food grains, India not only fed its citizens through the PDS mechanism but also exported a large quantity of food grains to all most all parts of the world where there was a shortage. From food grains to medicine, medical equipment and vaccine India stood in front to help all the countries in need. 

In the ongoing Ukraine-Russia conflict India plays a neutral role and stands for peace and continues helping the countries who needs support. The evacuation mission carried out by India during the war-like atmosphere not only brought our citizens but successfully brought citizens of our neighboring countries as well. India has provided all kinds of humanitarian and medical supplies to Ukraine in this conflict time.

The recent Sri Lankan Crisis also made us realize that we are capable to help any country that is in need. Sri Lanka is amid an unprecedented economic crisis which is slowly snowballing into a political crisis in the country. The country’s economy has been in a free fall ever since the onset of covid, which escalated to a level where the country had to temporarily suspend the external debt payment to make sure that it has enough money to meet its needs like food, electricity, fuel, gas, and medicine. 

 Very recently, about a few days back, reports read that India is extending the Line of Credit of about 100 million euros to Cuba to meet its food grain shortage. Once the agreement is finalized, food grains and other edible goods can be exported to that country. 

All these situations and incidents, however, point to a very serious and important question. How much we can trust the various indices being published by many of the reputed organizations and institutions all around the world? How much these indices are true? Are they also promoting their personal vendettas and bias through these indices?

Indices have always played a pivotal role in helping the viewers or users to analyze the state or the overall situation of a country, nation, or the matter under study. There are several indices in the world that investigates and gives an insight into the economy as well as the social aspects of a country. However, various recent news and reports are giving one a tough time believing whether these indices are accurate and unbiased. Incidences like the Ukraine-Russia conflict and the related economic tension, the economic crisis in Sri Lanka, and the food shortage in Cuba, are all pointing to a situation where one gets confused about whether to trust these so-called indices or not. 

According to the 2021 Global Hunger Index prepared by the European NGOs of Concern Worldwide and Welthungerhilfe, which measures and tracks hunger globally as well as nation wise, Cuba ranks among the first 18 countries with the lowest Hunger, and India, the country which provides food assistance and support to Cuba ranks 101st Position, which is even below that of Sri Lanka (65th Position). This report questions its authenticity when it states that there has been no difference in the stand of the country’s population who are facing hunger for the past 10 years (2012-2021) while reports during the year 2021 itself show that Cuba was and is going through the worst shortage of food since the 1990s. The country faces a severe food shortage that the citizens must wait in queue for hours together to fetch food. The situation in Sri Lanka is also similar. The high price of rice, Milk Powder, and other food grains in the country is making the country’s poor starve. Food Grains and other needed products are being exported to these countries in millions of quantities by India. But surprisingly, according to the GHI, Cuba’s hunger Index shows it to be a low hunger country than India. This must be looked further closely with reference to the working paper published by IMF which praises India, the country which stands in the 101st position in the GHI, for almost eradicating the extreme poverty in the country and maintaining the level below 1% even during the pandemic.

The Human Development Index, another most important index which is a statistic composite of Life expectancy, Education, and Income in each country to provide a measure of human development that is comparable between countries and over time, ranks both Cuba and Sri Lanka at 70th and 72nd Position in the Index, while that of India, the rank is 131st Position. A country that is going through one of the worst economic crises in its recent history and another country that is crippled with medical and food shortages remains in a high position in the index while the supplier of medicine, fuel, medical equipment, and food grains remains in the medium category.

The Global Happiness Index, another report which contains articles and rankings of national happiness, based on respondent ratings of their own lives, which the report also correlates with various quality of life factors including, business & economic, citizen engagement, communications & technology, social issues, education & families, emotions (well-being), environment & energy, food & shelter, government and politics, law & order, health, religion & ethics, transportation, and work, also reports India at 139th Position in the 144 countries list, while placing Sri Lanka at 126th position. 

These are just a few examples where one can see how many variations there in the data that are being shown and the ground reality of countries under reference. The reports as one can argue may be based on past data and therefore may have missed these recent trends in these countries, but what one should understand and need to keep in mind is that no economic disaster or crisis in any country happens on a sudden. The symptoms and clues regarding these will arise even years before the crisis hits the country. If the reports cannot predict or show any instances of such a disaster happening, then how much these reports are accurate? How far one can depend on these indices to conclude about one’s national development and the progress a country has made? 

It is very well visible that those countries which are ranking high in the list of all indices, whether it is GHI or HDI, or WHI, are facing severe financial, economic, or social issues within those countries. So, the question of how accurate these reports or indices are becoming relevant day by day. One, therefore, needs to understand that the indices are just numbers that may or may not be true, but it is the ground reality one should be looking into if they need to find the answers. The measures like Swatch Bharat, Make In India, Har Ghar Nal se Jal, Financial inclusion through PMJDY, Ujjwala Scheme, Bharatiya Janaushadhi Paryojana, Ayushman Bharat, etc. create an economic as well as social environment in India where even the poor and marginalized are being recognized and are being brought into the mainstream. 

The PMJDY helped millions of Indians who were kept out of the banking services to start bank accounts and receive several benefits from the government without the intervention of intermediaries. The Swatch Bharat Abhiyaan and related Namami Ganga Projects ensured a clean and hygienic India, through the eradication of pollution and promotion of cleanliness. The introduction of the Jal Shakti Ministry and the launching of the Har Ghar Nal se Jal program ensured water reached every corner of the country thereby reducing the suffering of Indian women who had to walk miles and miles to fetch water to drink. With the PMAY both Urban and Rural, the government ensured proper shelter to those who are not having the same. The Sahal Bijli Har Ghar Yojna brought several houses and villages into light that was under darkness even after 70 years of Independence. Affordable health care and low-cost medicines were made available through the implementation of the Ayushman Bharat and the Bharatiya Janaushadhi Pariyojana. These all, and many other measures of the government have always made the life of the poor and marginalized better in one way or other. 

Even after these crucial and strong measures if the Indices are of the opinion that our country is in a worse condition than many other countries in terms of poverty, health, and education, then there is a serious need to revise the methods of evaluation by these organizations. This is because, as far countries which are facing severe food and medicinal shortage keep on remaining at the top level and suppliers of these medicines and food to these countries remain at the bottom of the list, the indices cannot be considered as accurate, it is biased.

CMA Hrishikesh R Nampoothiri

mail id: hyadu12345@gmail.com

Mobile Number: +917560938431

A Not so Political Budget - Analysis on Indian Budget 2023-24

On August 15 2022, India completed 75 years of her independence from the centuries old colonial rule. A month back India had achieved another milestone replacing China as the world’s most populous country with around 142 crore citizens. The year also witnessed India assuming the presidency of the G20 Summit. The economy of the country on the other hand is also standing at a glorious position by becoming the 5th largest economy replacing our former rulers, i.e., The Great Britain. While almost one third of the economy in the world is about to witness a serious recession in the year 2023, India stands as a ray of hope in the otherwise dark horizon. In such a time the Union Budget of 2023-24 plays a crucial role in evaluating where the country is standing, and which all are the before us. A budget to build the foundation of the previous budgets and a blueprint for India at 100, the first budget of the Amrit Kaal, the last full budget of the second Modi Government was presented before the parliament by the Honorable Union minister for Finance and Corporate Affairs, Smt. Nirmala Sitaraman. The focus of the budget includes a technology driven, knowledge-based economy with strong public finances and robust financial sector.

On 31st January 2023, Smt. Nirmala Sitaraman had placed the economic survey for 2022-2023 in the parliament house in which it has pegged that India’s GDP growth for the next fiscal year, that is, 2023-2024 will be between a broad range of 6 to 6.8%. According to the economic survey presented, India remains and will continue to remain the fastest growing major economy in the world. The economic Survey also states that the country is recovering from the pandemic induced inflation, the impact of Russia-Ukraine war and the other external pressures, positioning herself to ascend to the pre-pandemic growth. The idea of a technology driven economy is evidently marked in this budget as well. While the budget for 2022-23 was a budget for digital India, this one can be without any doubt called as the budget for a developed India. There was not a single area which was left untouched in this budget. Starting from infrastructure to MSME, Direct Tax to Indirect Tax, Make in India to Export Promotion, the budget focused on all important aspects of the economy. 

While the Rs. 20 lakh crore agricultural credit targeted at animal husbandry, diary and fisheries sector is the major takeaway in this head with regards to agriculture, the measures, or programs like, ANB Horticulture Clean Plan Program, Sree Anna Program, Agriculture Accelerator Fund and Building up of Digital Public Infrastructure boost the sector growth. For health sector the major take away remains to be the setting up of 157 Nursing Colleges all around the world, followed by the Mission to eliminate Sickle Cell Anemia by 2047. The setting up of National Digital Library for Children and Adolescents and the revamping of teachers’ training via DIETs provide added boost to the educational sector. 

The idea of a country is reiterated by the way how the citizens treat the marginalized and vulnerable section of the society. Focusing on the same ideology, tribal and vulnerable class are addressed under the budget by the honorable Finance Minister. The newly announced Pradhan Mantri Particularly Vulnerable Tribal Groups (PM-PVTG) which focuses on the development of the vulnerable tribal groups with regards to housing, education and other basic amenities will be addressed through this. The enhancement of PM -AWAS outlay by 66% to 79,000 crores ensures house for all who are not having a roof above their head. The Bharat SHRI (Shared Repository of Inscriptions) will be set up for the preservation of the ancient inscription in digitalized form. Boosting education of the tribal community, under this head, the Government has also proposed to recruit 38800 new teaching and non-teaching staffs to around 740 Eklavya Model Residential Schools.

Infrastructure is the backbone of every economy. Any investment made for the development of infrastructure including the incentivization to boost investment in infrastructure and productive capacity will have a multiplier impact in the rise in growth and employment in the economy. The budget 2023 therefore has proposed humungous increase in the Capital investment outlay by 33.4% to Rs. 10 lakh Crore, highest ever capital outlay of Rs. 2.4 lakh crore for railways and creating Urban Infrastructure in Tier 1 and 2 cities via UDIF. Apart from that the government has identified 100 transport infrastructure projects for end-to-end connectivity of ports, coal, steel, and fertilizer sector. 

As the PM said, “Good Governance is the key to a nation’s progress.” To ensure the commitment of providing transparent and accountable administration the budget has proposed many major measures. The most important take aways in this regards are, 3 Specialized Make AI in India, National Data Governance Policy, Vivad se Viswas 1 and 2 for less stringent contract execution for MSMEs and easier and Standardized settlement scheme, E-Courts, Entity Digital Locker, 100 Labs for 5G Services and R&D Grant for Lab Grown Diamond sector focuses on a trust-based governance development in the economy. 

Zero Carbon Footprint is a policy being echoed by the country for a long time. To reach the goal of zero carbon footprint by 2070, the union budget of India ensures various major steps comprising the PM – PRANAM (Programme for Restoration, Awareness, Nourishment and Amelioration of Mother Earth), MISHTI (Mangrove Initiative for Shoreline Habitats and Tangible Incomes), GOBARdhan (Galvanizing Organic Bio-Agro Resources Dhan) and Amrit Dharobar. Apart from that 10000 bio input resource centers, facilitating farmers to adopt natural farming, Promotion of Battery energy storage system etc. are also notified under the budget. The budget 2023 focuses on the are of Youth Power or Amrit peedhi as well. Though the budget the government focuses on ensuring the utilization and upgradation of the youth power available in the country. The launch of PMKVY 4.0 ensures to equip the youth with new courses like Coding, AI, Robotics, 3D printing etc. which will serve as a benefit for then in the coming digitalized, technology driven world. Tourism which is integral part of any economy’s development is also addressed. With state and private participation, the budget focuses to develop at least 50 destinations as a complete package. Other important takeaways in the financial sector are the setting up of National Financial Information Registry, Mahila Samman Bachat Patra, a one-time new small saving scheme for a period of 2 years for women, enhancement of the deposit limit of senior citizen savings scheme to 30 lakhs and extending the credit guarantee scheme for MSMEs.

The budget also stands apart from the previous budgets with the announcements it made with regards to tax proposals. In the indirect tax sector, the budget focuses on reducing various import duties with regards to various raw materials which are necessary in order to produce goods or commodities in India and also reduced various export duties including BCD on various commodities being exported from India. This will ensure higher export, higher domestic manufacturing, and more value addition in the economy. In the direct tax sector, the Budget gave more power to the newly incorporated New Tax Regime (Sec. 115BAC). While it was evident from 2020 since its incorporation, that the exemptions will be systematically scrapped to ensure a One Income One Tax policy, the new announcements accelerated the scrapping effectively. The FM through the budget reduced the tax slabs from 7 to 6 making income up to 3 lakhs exempted from tax under new tax regime and incorporated rebate up to 7 lakhs for the tax payers of new tax regime. The reduction of highest surcharge from 37% to 25% was also made available for the taxpayers of new regime. Also, in the new tax regime first time since its incorporation, the government allowed Rs. 52,500 as standard deduction for salaried class with an income more than or equal to Rs. 15.5 lakhs. For corporates and cooperative sectors also, the budget was very lenient. MSME are allowed to avail benefits of presumptive taxation, new cooperatives are provided with the benefit of 15% corporate tax and TDS on cash withdrawal limit also enhanced to 3 crores. 

While it cannot be called as a budget like never before or a historic one in the sense, the inputs being put forward through the budget will result in a great and visible change in the economy for sure. The areas in which it focuses will not only result in an inclusive development of the economy but will also result in the upgradation of the country into a more advanced and more developed one. The budget 2023-24 is focused mainly on 7 key areas, or otherwise referred by FM as the Saptarshis, of Inclusive development, reaching the last mile, agriculture, and investment, unleashing potential, green growth, youth power and financial sector in the first part and Direct as well as Indirect Tax in the second part. While it is the last full budget of the second Modi government, it is to be noted that there were not much populistic announcements, no high hope building promises in the budget, however, it remains as one of the vital and important budgets for the development of the economy focusing on development and providing relief measures to the common man. Thus, the budget also creates a special place being a not so politically motivated budget like any previous before election budgets. 

Apart from a few measures in the budget, most of the measures to some extents are macro in nature, therefore, the impact of the same will not be a recent one. Employment Generation which is one of the crucial matters considering the population explosion which we are passing through, is not addressed separately in the budget. It is also to be noted that while it is necessary to scrap the exemptions to reduce the burden of work on the officials and to make it more transparent, deductions like LIC Premium, PF contribution and other Thrift based Deductions and Housing Loan, if removed will have an adverse impact on the loan and insurance sectors of the economy. If the same is scrapped, the common taxpayer who invests with the mere intension of reducing tax will automatically withdraw it as it serves him/her no purpose leading to a downfall in the economy. 

CMA Hrishikesh R Nampoothiri

mail id: hyadu12345@gmail.com

Mobile Number: +917560938431

 

 

Increasing need for Cost Management in India

"In short, the worst is yet to come, and for many people, 2023 will feel like a recession." This was the crucial message shared by the Chief Economist of the International Monetary Fund, Pierre-Olivier Gourinchas. It is therefore evident that the world economy is currently passing through a stage of uncertainty and the impact of the same will affect the Developed as well as developing countries. The rising inflation backed by the Ukraine-Russia war and the oil shortage are giving an effect of ‘rubbing salt on someone's wound’. Economic volatility is not a new thing to any country but in the current global scenario where every economy is connected, the impact of the same will be serious and may be disastrous to some. 

Even though the recent report by the IMF cuts the growth forecast of the country, India stands as a bright spot on this otherwise darker horizon. What does it indicate? Is it enough for a country? How can the country overcome the possible future uncertainties? Will it fall into recession like many countries? What measures should it take to maintain the stability and to grow better? 

Better economic infrastructure built up on a strong base is what every economy in the world is looking forward to. But to make it possible both public as well as private entities must go hand in hand. How an economy can survive in a difficult time and can manage a profitable outlook has been a question in this regard. The measures to take at this point is nothing but good analysis of the cost sector and a better management of the same. But unfortunately, the cost management now-a-days has just reduced to the concept of cost cutting by terminating employees or stringent measures of cost reduction. A reality check therefore is necessary as regards to what one should be doing to manage the cost rather than focusing on cost reduction alone. Cost reduction and Cost Management though sound synonymous to a layman, both the concepts are very much different. Without proper awareness of the same and a clear knowledge of what one must do to manage the cost factor of the organisation no company can survive in the future. 

In 1991, with the introduction of NEP, by the then Finance Minister of Narasimha Rao led Government, Dr. Manmohan Singh, Indian economy saw an unprecedented growth. The opening up of Indian markets to the foreign companies and allowing private participation in various key sectors enabled our economy to see a tremendous growth. Globalization has given rise to many MNC and thus giving them the right to sell their products in our country and allow them to set up plants in our country. In the past one-decade foreign companies has shown great interest in India and they have started investing in India which has led a whole time increase in the FDI and FII in the country. For the past one decade, India has also seen a great interest from foreign companies to invest vastly into India, which led a whole time increase in the FDI and FII into the country. To be a destination for further FDI and FII, India as a country and Indian Companies must come up with measures to reduce the cost of production. If the cost of production is high, no MNCs would like to invest here.

The COVID-19, which had its iron fist over each of us, taught us that mere running of a business is not going to make any difference to the system at all. Instead, a very organized strategy and action plan regarding the management of the cost factor is necessary. As notably said by former Prime Minister of India, Bharat Ratna Shri Lal Bahadur Shastri ji, "Without cost accountancy one works rather in a vague undefined way without knowing where an industry exactly stands but in cases where there are cost accountants, correct assessment of its proper growth & working can easily be made." But it is very much evident that no company is seriously bothered about what will be their Cost Control strategy or whether they should have a Cost Accountant to control and manage the costing of the company. 

In an era of digitalization, termination of employees will not result in cost control. Decisions must be taken taking into consideration each single aspects, starting from the development of an idea for business, till the product is made available to the customers and the after-sale services provision. The Material being purchased, the employees being laboured, the machines being installed, the time being taken for each unit of production, the quality of the product, the control system of the organization, the management of inventory whether it is in RM, WIP or FGs, the strategy of advertisement, the sales techniques being used, the customer support and after sale services, all needs to be considered with great care and caution. The role of a Cost and Management Accountant therefore is not just to see whether the total cost is reduced but it also involves a clear-cut examination of every nook and corner of the organisation to ensure a fair, reasonable, and equitable functioning of the organisation. Whether to make decisions like which product will be more profitable, which product should be produced more, whether production should be done or the same can be outsourced, whether a new proposal can be accepted, all these decisions depend upon the costing and the cost management of the organization. 

The 2 major ways in which an organisation can increase its profit is, either by inflating the price or by decreasing the cost. While the former is a risky task, the latter is always a preferable option. Unfortunately, only a handful of companies are ready to go with the second option. Among them also, only a very few companies are ready to appoint a Cost Accountant to manage the costing areas of the company. Many Indian grown MNC having great and long experience in the field of business knows that Cost management is an important step to create a more profitable and viable business environment and they also implements the measures in their organizations. JIT Inventory, ABC System etc. are found to be practical and possible even by many of our own companies. But why are others not bothered about the same? How many Indian Companies are there, who are concerned about the introduction of Cost Audit in their organization voluntarily? Is Financial Audit enough for an organization? Why a closer look into the cost aspects is being purposefully neglected by many?

Learning about cost management can help one better comprehend how a company recognizes and categorises costs according to the requirements of the project or organization and why it has an imperative role in planning, controlling and decision-making. It is a process that takes in forming estimations, formulating budgets, and controlling costs. The objective of cost management, therefore, is to increase an organisation's productivity and enhance profitability. With proper management of cost and cost components an organization can reduce its future expenses and can make the organization more lucrative. The main objective of cost management is therefore to reduce the overall cost of the organization without compromising the quality of the product or service being produced or rendered. It is thus a mechanism which ensures cost control rather than cost reduction. A cost accountant unlike a financial accountant relies on both physical as well as financial information to create a system which ensures zero tolerance to quality issues but one which is at the same time enable the company or organization to create a more profitable business opportunity by cutting the unwanted costs which an organization may incur time to time. It is more like a control mechanism rather than an account maintenance. Cost Audit which is the extended and next level of cost accounting ensures that the cost data or information being provided is accurate and it adheres to the cost accounting plans. Cost auditing checks and verifies cost accounts’ accuracy, actuality, authenticity, and overall adherence to the company’s cost accounting plan. This involves not only the examination of cost accounts but also the fact that the plan prepared in this connection has been duly executed.

The reluctance or purposeful negligence by many companies however is not because they are unaware about the branch of Cost Accounting and the benefits it can bring into the company’s profitability, but because they do not what to spend any more money on another professional. For them, the final word is that of a Chartered Accountant. While the Chartered Accountants are best in their respective field like Financial Accounts management and Financial Audit, there exists a separate branch of study called Cost and Management Accounting. They are professionals who are more experienced and well informed in the field of Cost related issues. Mere Financial Account management or its audit is not going to bring profitability to a company in the current financial as well geopolitical scenario. While Financial accountants develop financial reports and file tax documents for a business, sideways with other services and comprises passing on business information to external authorities to certify it stick to legal guidelines, cost accountants analyse information for internal use and company advantage. By evaluating the expenses of production, cost accountants can aid companies customise their production processes, plummeting costs and improving performance. What a company or companies in general needs is to take a deep dive into the cost part, identify the areas which need corrections, make analysis of the cost statements, and take measures to improve the costing mechanism. In a nutshell Costing is the life blood of business. Starting from the very beginning of developing an idea till it is implemented and supplied to the customers the process of costing is spread across. 

Cost reduction through the termination of employees and closing of branches or offices may provide short-term relief to the company but will not benefit in the long term. If the company is making losses or performing less than how it is expected to perform, then one should understand that these are just symptoms of some major underlying problem. Rather than treating the symptoms, the organization needs to work on the cause, which is, the mismanagement of Cost. The introduction of a cost accountant is not an additional expense it is an investment that you are making so that the future of the enterprise is made safe and secure. What needs to be done to overcome this disregard or purposeful disinclination from the part of the companies include, ensuring the maintenance of Cost Accounts and mandatory cost audit. Unless a necessity is created there is limited chance that the corporates will adopt the concept. The second need is the recognition of Cost Accountant under the definition of accountant under income tax act. The exclusion of the same is what gives a false narrative regarding the Cost accountants right now. A prosperous economy needs to adapt to the changing requirements all around. The existing and old school method of financial analysis is not going to bring any further improvement in the economic scenario of any organization. Therefore, it is high time that organizations accept and adopt the cost management, employ cost accountants, and consult cost auditors to ensure a safe and more profitable economic environment. 

CMA Hrishikesh R Nampoothiri

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