Issue of Cost Accounting Standards (CAS) is a pioneering initiative by the Institute of Cost and Works Accountants of India. The first CAS (CAS-1) was issued by the institute in the year 2002. The Preface to Cost Accounting Standards issued by the institute has set out the following objectives to be achieved through CAS: to provide better guidelines on standard cost accounting practices; to assist cost accountants in preparation of uniform cost statements; to provide guidelines to bring standard approach towards maintenance of cost accounting records under various statutes; to assist the management to follow the standard cost accounting practices in the matter of compliance with statutory obligations; and to help Indian industry and the government towards better cost management.
ICWAI has so far issued eight CASs. It is a very slow progress, presumably because target users of cost accounting standards do not appreciate the need for CAS. The institute has now deci-ded to accelerate the process and to issue significant number of CAS within the next one year.
Financial accounting standards control accounting policies of companies to protect investors' interest. They protect investors from window dressing of financial statements and bring transparency, consistency and uniformity in financial reporting and thus improve the capital market efficiency. The needs for financial accounting standards are well understood by all user groups. But it is not so in case of cost accounting standards. There are reasons for the same.
Cost accounting principles and practise evolved over years to fulfil needs of managers. They are the primary users of cost (and revenue) information. They need cost information for planning and control and ask for specific cost information that they require. A cost accounting system generates information primarily for internal use. Therefore, it is generally felt that there is no need for cost accounting standards. Globally, there is no practice of issuing cost accounting standards. ICWAI's initiative being innovative in nature, it is natural questions are raised about the utility of CASs being issued by ICWAI.
Managers are not the only users of cost information. Govern-ment and regulators are also users of cost information. Regulators use cost information to protect the interest of customers. For example cost information is important to assess whether a service/good provider is cross subsidising different services /goods or different customer segments.
The government some time uses cost information to determine the tax liability. For example, Excise department in certain situations use cost information to determine the excise duty payable by producers of goods. Cost Accounting Standards (CAS) provide the reference point and thus, help settling disputes between different parties (e.g. the regulator and regulated service providers). For example, to levy excise duty on goods used for captive consumption, the cost of production is determined based on principles stipulated in CAS-4. CAS also provides guidance to cost auditors. Therefore, ICWAI thro-ugh its pioneering decision to issue CAS is fulfilling needs of users who are not necessarily managers.
There are many who often question whether ICWAI is adding any new knowledge by issuing CAS. They argue that CAS only codifies the existing cost accounting prac-tices. Perhaps they do not appr-eciate that the objective of formulating standards is to codify the best (or most acceptable) prac-tices. Once the best practices are codified, they are improved through research and inputs from various users of cost information.
Thus, in the process of formulating standards, the standard-setting bodies benchmark the Indian practices with global practices and select the best practices from diverse practices available globally. Therefore, the CAS improves cost accounting practices and the body of knowledge available in India. This by itself justifies issuance of CAS by ICWAI. Moreover, they achieve the objectives set out in the Preface.
There is a need to popularise CAS among target users. The government should support the ICWAI's initiatives. It should use the ICWAI as a think tank to take India to the next level of maturity in management accounting practices. This will improve the global competitiveness of Indian industry.