The Hindu Business Line : CARRs can deliver

THE Committee on Subordinate Legislation (14th Lok Sabha), in its first report submitted on December 2, 2004, has indicted the Department of Company Affairs (DCA) for lack of seriousness in applying the Cost Accounting Records Rules (CARRs). "The Committee is concerned to note that the Department of Company Affairs does not have a definite idea about the relevance and significance of CARRs in the present day scenario of liberalisation and globalisation."

The summary of the Committee's recommendations, begins thus: "Even after 38 years after the enactment of the relevant provisions empowering the Government to prescribe the Cost Accounting Records Rules (CARRs), these have not been framed to cover all major industries/projects. CARRs have so far been notified for 47 industries. The slow pace of framing rules negates the very purpose of the important provision of legislation passed by Parliament."

The Cost and Works Accountants Act was passed and Gazetted in 1959, but CARRs were prepared only in 1967. The 47 industries covered to date include electric motors, cycles, tyres and tubes, dry cell batteries, engineering industries, chemical industries, jute goods, plantation products, sugar, bulk drugs, steel plants, steel tubes and pipes, polyester, nylon, cement, fertilisers and footwear.

The DCA seems to be an ineffective umpire, ambivalent to responsibilities. Small wonder, in his note to the CSL, the DCA secretary highlighted the opinion of a school of thought according to which the "competitive regime which is now in vogue calls for companies to be competitive and secretive if they have to be on a continuous edge. This view advocates dilution of CARRs to the extent of eliminating them from the statute."

The word, `secretive', is objectionable given the need for transparency — the cornerstone in a liberalising market. The DCA's reluctance to expand CARRs is more than explicit.

The CSL is justly critical, keeping in mind the pressure of the lobby that wants secrecy about costs. "One of the objects of the Companies (Second Amendment) Bill, 1964 (which enactment became the Companies (Amendment) Act, 1965)) as stated in the Statement of Objects and Reasons, appended to the Bill, was to strengthen the provisions relating to investigation into the affairs of the companies and to provide for more effective audit in dealing with cases of dishonesty and fraud in the corporate sector," the panel observed.

The observations by the CSL — particularly the legal basis of wielding a big stick against fraudulent trends in the corporate sector — are timely. However, the DCA agrees that "the main objective of cost audit when introduced was mainly to meet government requirements for regulating the price mechanism in certain industries and in the present scenario authentic cost data base is not only essential to improve upon their performance and face the competitive environment but is also useful to various government agencies, revenue authorities, regulatory bodies, banks and financial institutions for meeting their respective objectives."

Inexplicably enough, CARRs for coal, transportation (aircraft, ship, railway locomotives), industrial machinery (farm machinery and earthmoving machinery), medical and surgical appliances, and so on, are yet to be formulated.

There has been no move to bring coal under the CARR scanner, although CAG reports have repeatedly pulled up Coal India Ltd and its subsidiaries for financial anomalies and overstatement of profits. This, despite cost accountants having been the honchos of big coal companies.

Auditing by chartered accountants is important, but it is essentially a post-mortem. Cost audit by cost accountants, on the other hand, is something like a live audit.

Though both are important, cost accountants in India do not unfortunately enjoy the recognition they deserve. Laxity in expanding the ambit of CARRs is, therefore, not unusual.

One hopes the Finance Minister stresses on wider and comprehensive norms for application of CARRs in the ensuing Budget session in order to ensure greater transparency.

(The author is a Kolkata-based freelance writer.)

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