Fraud Accounting

SPECIAL FOCUS
INSIDE Taxation: Advice from the Arthashastra and other tax happenings page 62
theMANAGEMENT
ACCOUNTANT
THE JOURNAL FOR CMAs SEPTEMBER 2014 VOL 49 NO. 9 `100
FORENSIC
ACCOUNTING
AND AUDIT
Though forensic accounting is at a nascent stage in
India, it is currently in great demand because of the
emerging demand for transparency and accountability
The Institute of Cost Accountants of India

(Statutory body under an Act of Parliament) www.icmai.in
The Institute of
PRESIDENT Cost Accountants
of India
CMA Dr A S Durga Prasad
president@icmai.in
VICE PRESIDENT
CMA Pramodkumar Vithaldasji Bhattad
vicepresident@icmai.in
COUNCIL MEMBERS
CMA Amit Anand Apte, CMA Aruna Vilas Soman,
CMA D L S Sreshti, CMA Hari Krishan Goel, THE INSTITUTE OF COST ACCOUNTANTS OF INDIA (erstwhile
CMA M Gopalakrishnan, CMA Manas Kr Thakur,
CMA Dr P V S Jagan Mohan Rao,
The Institute of Cost and Works Accountants of India) was first established in
CMA Rakesh Singh, CMA Sanjay Gupta, 1944 as a registered company under the Companies Act with the objects of
CMA Dr Sanjiban Bandyopadhyaya,
CMA Dr S C Mohanty, CMA Dr S R Bhargave, promoting, regulating and developing the profession of Cost Accountancy.
CMA T C A Srinivasa Prasad
GOVERNMENT NOMINEES On 28 May 1959, the Institute was established by a special Act of Parliament,
Ashish Kumar, G Sreekumar, K Govindaraj,
Pramod Kumar, Suresh Pal namely, the Cost and Works Accountants Act 1959 as a statutory professional
Secretary (Acting) body for the regulation of the profession of cost and management accountancy.
CMA Kaushik Banerjee
secy@icmai.in
It has since been continuously contributing to the growth of the industrial and
Director (Administration)
CMA Arnab Chakraborty economic climate of the country.
admin.arnab@icmai.in
Director (Professional Development) The Institute of Cost Accountants of India is the only recognised statutory
CMA J K Budhiraja
pd.budhiraja@icmai.in professional organisation and licensing body in India specialising exclusively in
Director (Examinations) Cost and Management Accountancy.
CMA Amitava Das
exam.amitava@icmai.in
Director (CAT), (Training & Placement)
CMA L Gurumurthy
cat.gurumurthy@icmai.in
Director (Finance)
CMA S R Saha MISSION STATEMENT
finance.saha@icmai.in
Director (AdministrationDelhi Office The CMA Professionals would ethically drive
& Public Relations)
CMA S C Gupta
admin.gupta@icmai.in
enterprises globally by creating value to stakeholders
Director (Research & Journal) in the socio-economic context through competencies
CMA Dr Debaprosanna Nandy
rnj.dpnandy@icmai.in drawn from the integration of strategy, management
Director (Advanced Studies)
CMA Dr P S S Murthy and accounting.
advstudies.murthy@icmai.in
Director (CPD & PR)
CMA A S Bagchi
cpd.bagchi@icmai.in
Director (Technical)
CMA Dr S K Gupta VISION STATEMENT
dirtechnical.delhi@icmai.in
Director (Discipline) and The Institute of Cost Accountants of India would be
Joint Director (Membership)
CMA Rajendra Bose the preferred source of resources and professionals
membership.rb@icmai.in
Editorial Office
for the financial leadership of enterprises globally.
CMA Bhawan, 4th Floor, 84, Harish Mukherjee
Road, Kolkata-700 025
Tel: +91 33 2454-0086/0087/0184
Fax: +91 33 2454-0063
Headquarters
CMA Bhawan, 12, Sudder Street
Kolkata 700 016
Tel: +91 33 2252-1031/34/35
IDEALS THE INSTITUTE STANDS FOR
Fax: +91 33 2252-7993/1026 to develop the Cost and Management Accountancy profession
Delhi Office to develop the body of members and properly equip them for functions
CMA Bhawan, 3, Institutional Area
Lodi Road, New Delhi-110003 to ensure sound professional ethics
Tel: +91 11 24622156, 24618645
Fax: +91 11 4358-3642
to keep abreast of new developments
WEBSITE
www.icmai.in
Behind every successful business decision, there is always a CMA
www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 3

September 2014
Inside
COVER STORY
SEPTEMBER 2014 VOL 49 NO. 9 `100
The Management Accountant,

official organ of The Institute
of Cost Accountants of India,
established in 1944 (founder
member of IFAC, SAFA and CAPA)
EDITOR
CMA Dr Debaprosanna Nandy
editor@icmai.in
PRINTER & PUBLISHER

CMA Dr A S Durga Prasad
President, The Institute of Cost
Accountants of India
12 Sudder Street
Kolkata 700 016
and printed at
Hooghly Printing Co Ltd
(a Government of India Enterprise)
EDITORIAL OFFICE
CMA Bhawan, 4th Floor, 84, Harish
18
Mukherjee Road, Kolkata-700 025
Tel: +91 33 2454-0086/0087/0184
Fax: +91 33 2454-0063
FORENSIC ACCOUNTING IN
The Institute of Cost Accountants of THE CYBER WORLD: A NEW
India is the owner of all the written
and visual contents in this journal.
CHALLENGE FOR ACCOUNTANTS
Permission is neccessary to re-use
any content and graphics for any
22 29
purpose.
A theoretical A multidimensional
construct of approach to investigating
forensic accounting frauds and scams: a study
DISCLAIMER and auditing in the global and Indian
The views expressed by the context
authors are personal and do
40 46
not necessarily represent White Collar Why banks should
the views of the Institute Crime and its go for Forensic
and therefore should not be punishment Accounting Needs
attributed to it. policy and applicability
4 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

6 COVER STORY BANKING
52
From the Forensic accounting
Editors desk eliminates epidemic
ills in business: A
8 conceptual framework
56
Presidents
communique Viewing through the
forensic lens
11
ICAI-CMA TAXATION
Snapshots
15 78 Transparency in Indian
banks considering
information on bank
Economy
websites
Updates
60 COST MANAGEMENT
Round Table
Discussion
83 Activity based
Management
Glimpses of its practical
62 Fiscal policy: Advice
applications
61
from the Arthashastra
and other tax
From the happenings CONTEMPORARY ISSUE
Research Desk
66 Finance (No.2) Act 2014 88 Foreign direct
105
investment in the
telecom sector
CMA 68 Tax Titbits TRANSFER PRICING
Dossier
118 70 Taxation issues in

Telecom Sector 96 International Transfer
Pricing Issues and
challenges faced by MNCs
Institute News and regulators
The Management Accountant technical data Advertisement rates per insertion

` US$
Periodicity: Monthly
Language: English Back Cover 50,000 2,500
Inside Cover 35,000 2,000
Overall Size: - 26.5cm x 19.5cm
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Screens: up to 130
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The Institute reserves the right to refuse any matter of
Overseas: US$150 for airmail or US$100 for surface mail
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Concessional subscription rates for registered students of the decision of the Editor in this regard will be final. For any query,
Institute: `300 p.a. or `30 for a single copy mail to journal.advt@icmai.in

FROM THE EDITORS DESK
Greetings! Forensic accountants

Forensic accounting has can support the propaga-
risen to prominence be- tion of the required infor-
cause of increased financial mation about governance
frauds popularly known and ethics policies to in-
as white collar crimes. terested parties within and
Forensic accounting can outside the organization.
be described as a special- In this way they can help
ized field of accountancy to maintain a good image
which investigates fraud of their respective com-
and analyse financial infor- panies to its stakeholders
mation to be used in legal and also build up effective
proceedings. Forensic ac- communication process
counting uses accounting, and transparency.
auditing, and investigative The fraud prevention
skills to conduct investiga- strategy outlines a high
tions into theft and fraud. level plan on how the or-
It encompasses both Liti- ganization will go about
gation Support and Inves- implementing its fraud
tigative Accounting. prevention policy. An ef-
Forensic audit can be de- fective fraud risk manage-
fined as an examination of ment approach encom-
evidence regarding an assertion to determine its corre- passes controls that have three objectives:
spondence to established criteria carried out in a man- Prevent
ner suitable to the court. Detect
Respond
Objectives of Forensic Accounting and Auditing Fraud risk management strategy can follow the fol-
To use the forensic accountants conclusions to fa- lowing steps:
cilitate a settlement, claim, or jury award by reduc- Identify risk areas.
ing the financial component as an area of contin- Understand and assess the scale of risk.
uing debate Develop a risk response strategy.
To avoid fraud and theft Implement the strategy and allocate responsibilities.
To restore the downgraded public confidence Implement and monitor the suggested controls.
To formulate and establish a comprehensive corpo- Review and refine the process and do it again.
rate governance policy Fraud risk management is not a one-time exercise but
To create a positive work environment a continuous process. As businesses change and grow, so
A forensic accountant can ensure the integrity and do their fraud risks.
transparency of financial statements by actively investi- This issue presents a good number of articles on the
gating for fraud, identifying areas of risk and associated cover story theme Forensic Accounting and Audit by
fraud symptoms and a good fraud prevention program distinguished experts and authors. We look forward to
can help to create a positive working environment where constructive feedback from our readers on the arti-
employees do not indulge themselves to abuse their re- cles and overall development of the journal under this
sponsibilities. So, by helping companies to prevent and section. Please send your mails at editor@icmai.in. We
detect fraud the forensic accountants can help to establish thank all the contributors to this important issue and
a comprehensive corporate governance policy. hope our readers enjoy the articles.

LETTERS TO
THE EDITOR
The Journal is going from Good,
The Institute of Cost

Very Good to Excellent. This
makes me proud of being a
member of the Institute.
Looking forward to
improvements to the Journal
Accountants of India
and the perception of corporates (Statutory Body under an Act of Parliament)
about CMAs.
CMA V Subramanian www.icmai.in
On the online link of the Call for Research Papers/Articles for
Journal: Wonderful! Very good Research Bulletin Vol. XL (ISSN 2230 9241)
idea! It will save paper and
valuable natural resources.
We invite you to contribute research paper/ article for
Also, members can now
download and keep it in a Research Bulletin, a peer-reviewed Bi-Annual Journal of
separate folder and read when The Institute of Cost Accountants of India. The aim of this
time permits. bulletin is to share innovative achievements and practical
CMA R Parthasarathy experiences from diverse domains of management, from
I request you to publish a researchers, practitioners, academicians and professionals.
special issue on the incentive This bulletin is dedicated to publish high quality research
schemes of state governments papers providing meaningful insights into the management
and the central government
for industries, their impact on
content both in Indian as well as global context.
the Indian economy and the
specific role that CMAs can Guidelines to submit full Paper
play in them. Soft Copy of the full paper should be submitted in double
CMA Santanu Chakraborty space, 12 fonts, Times New Roman, keeping a margin of 1
My warm appreciation for the inch in four sides, MS Word 2003 (.doc) format.
nice graphics that accompanied Each paper should be around 15 typed pages and preferably
my articles in the last two within 5000 words including all.
issues of our journal. They
enhanced the tone of the
An abstract of not more than 150 words should be attached.
articles and were eye-catching, The cover page should contain the title of the paper, authors
specially the photograph of the name, designation, official address, contact phone numbers,
statue of Lady Godiva which e-mail address.
was an example of editorial
thoughtfulness. Kudos for the
good work. Papers must be received within 3Ist October, 2014 in the
Dr Ravindran Pranatharthy following email id: research.bulletin@icmai.in

PRESIDENTS
COMMUNIQUE
INSTITUTE PREPARED TO PLAY

A ROLE IN INDIAN ECONOMY BY
PROVIDING VITAL INPUTS
sectors in order to boost the economy and investments. From
the Institute I am glad that we are well prepared to play a due
role in all these sectors by providing vital inputs to the Govern-
ment in their efforts.
Companies (Cost Records and Audit) Rules 2014

The Expert Committee of MCA, constituted to examine the is-
sues relating to Cost Rules, desired that the Institute submit
a representation, highlighting the grievances of the Cost Ac-
countants on the Companies (Cost Records and Audit) Rules
2014. The Institute has submitted the following documents in
this regard for the perusal of the Expert Committee on August
21, 2014:
CMA Dr A S Durga Prasad a. Genesis for regulatory mechanism on cost records and cost
President, The Institute of Cost Accountants of India audit covering the review made by the earlier Expert Group con-
stituted by MCA in 2008 and the framework in place since 1965
till date
b. Legal provisions relating to cost records and cost audit, in-
Where is the Life we have lost in living? Where is the cluding suggestions made by various Parliamentary Commit-
wisdom we have lost in knowledge? Where is the knowledge tees.
c. Brief observations / grievances of Cost Accountants on the
we have lost in information? TS Elliot structure & contents of the Companies (Cost Records and Au-
dit) Rules, 2014.
d. International CMA Practices.
e. Value Additions through Cost Audit
Our suggestions with justifications for coverage, and other
terms relating to prescribed class of companies / industries /
My Dear Professional Colleagues, sectors, the threshold limits along with appropriate changes /
September is starting with some good tidings that the Economy modifications to be made thereunder will be submitted to the
has started turning around and has proceeded with some good Expert Committee shortly. We also represented for postpone-
initiatives from the Government for kindling economic growth. ment of Companies (Cost Records and Audit) Rules, 2014 to be
The optimism to achieve growth beyond 5.7% has been revived. effective from 1st April 2015 pending recommendations of the
Some of the key initiatives such as removal of restrictions on Expert Committee appointed by Ministry of Corporate Affairs
FDI in Railways and Defence, thrust on manufacturing and In- and these rules in its present form are non-implementable due
frastructure investments and creation of special mechanism to to various issues pointed out in its representation to the Expert
resolve tax disputes have definitely helped regain the investor Committee and MCA.
confidence. There is also a momentum for Goods & Services
Tax which will be the next big thing that will bring harmoniza- Quality Review Board
tion in the tax structure of the country. The Quality Review Board of the Institute, which has been doing
There needs to be a balanced growth of all the three impor- a yeoman service in guiding the practicing members in provid-
tant sectors of Indian Economy i.e. Agriculture, Manufacturing ing quality professional service, has given its recommendations
and Services. The Government is also concentrating on Educa- for further improvement in the quality of the services rendered
tion & Health, Agriculture & Food Processing and Infrastructure by the members of the Institute including those in service.

These include: Ministry of Textiles has shown willing- Departments/Directorates of the Insti-
To develop Leadership and Communi- ness to involve our Institute and CMA tute, I now present a brief summary of
cation skills of Final passed students. profession to provide a mechanism to the activities.
To organize necessary training for the the Ministry for monitoring the flagship
employees of the Institute to improve the Textile Upgradation Scheme, being im- ICWAI MARF Programs
image of the Institute. plemented by the Ministry. We have also The ICWAI MARF has organized the
CEP hours and Training requirements assured the Ministry to develop a mech- programs on Advance Tax, TDS and Tax
for Certificate of Practice (COP) holders anism of providing additional skill based Planning and Risk Based Internal Audit
to be revised with 50% catered to profes- training on Cost Accounting to the train- for Effective Management Control dur-
sionally related subjects. ees of Sardar Vallabhai Patel Institute of ing 05-08 August, 2014 at Indore, which
Necessary steps to implement the Management and similar technical and were attended by officers from different
recommendations have been initiated. management Institutions recognized un- organizations. The program on Overview
der the Ministry of Textiles. of Companies Act, 2013 & Finance Act,
Meeting with Union Minister 2014 has been organized for Container
for Micro Small and Medium Advocacy - Promoting Corporation of India Limited at CMA Bha-
Enterprises awareness wan, New Delhi during 12-13 August,
I along with CMA Manas Kumar Thakur, In the meeting of National Advisory 2014 which was attended by 25 Senior
Council Member had the opportunity to Board, the Chairman emphasized on and Middle level officers.
meet the Shri Kalraj Mishra, Honble Un- the relevance of Cost and Management
ion Minister for Micro Small and Medium Accounting profession and the efforts Advanced Studies Directorate
Enterprises on 8th August 2014 at New required for making the profession more To equip the members with requisite
Delhi. The meeting was very fruitful. On relevant and enhancing visibility. This skills necessary for both Systems audit
behalf of the Institute we offered the calls for creating awareness at the high- and Internal Audit, the Directorate of Ad-
Ministry some specific services to be est level of decision making about the vanced Studies commenced The Diplo-
rendered by the Institute and its mem- knowledge and expertise possessed by ma in Internal Audit course and IS Audit
bers. Some of them are Creating a MSME the CMAs and also across the stakehold- and Control. The 2nd batch of Diploma in
help desk at each of the Chapters / CMA ers spectrum. IS Audit and Control will commence from
Support centres for facilitating MSMEs In order to promote Advocacy of the pro- October 2014 as the date for admission
to get advice on various aspects of their fession through promoting awareness is extended to 30th September 2014.
operations; to carry out research studies amongst Key stakeholders and audienc- The Directorate has till now conducted
to assess the efficiency of various units es, and focus on the areas: 15 webinars for Diploma in IS Audit &
/ activities; to organize training programs Highlighting the critical differentiating Control and 9 webinars for Diploma in
for MSMEs specifically focusing on the aspects of a CMA; the DNA of a CMA Business Valuation. 6 webinars were
need and mechanism for effective cost What steps are needed for career pro- also held for Diploma in Internal Audit.
management for survival and becoming gression as leader; identifying career The Directorate has notified the Diploma
competitive. This was followed up with and educational pathways for gaining in Management Accountancy Examina-
a meeting with Dr. Sunita Chhibba, Chief experience and knowledge tion to be conducted in December 2014.
Economic Advisor to MSME Ministry. Using CMA role models, and identify- Interested members are requested to vis-
We were advised to give a detailed pro- ing what stakeholders need and exit the Institutes website for details.
posal and a draft MOU for the considera- pect of CMAs
tion of the Ministry. Greater transparency and understand- CAT & ASAP
ing of organizational performance, pro- Total review of ASAP, Kerala was done by
Meeting with Secretary, active engagement with stakeholders CMA TCA Srinivasa Prasad, Chairman,
Ministry of Textiles on business drivers of performance. CAT Committee and CMA M. Gopalakr-
I along with CMA M. Gopalakrishnan, As a part of this initiative, during the ishnan, Member, CAT Committee, with
Past President and Council Member last one month, I met Industrialists and
the officials of Government of Kerala. The
met with Shri S.K Panda, IAS, Secretary, some of our Members who are holding
senior positions, from different regions in Institute is gearing up for the successful
Ministry of Textiles on 26th August 2014
and discussed the role CMAs can play order to connect with the Industry and commencement of the 3rd batch of stu-
in implementing the various schemes also elicit their views with respect to dents numbering around 4,000. In Rajast-
for promoting cost competitiveness and the areas listed above and their expec- han, the third batch of students number-
thereby sustaining the growth of Textile tations. ing around 500 from various colleges has
Sector, as indicated in the Vision, Strat- To apprise all the members about the already joined the course as per the MoU
egy and Action Plan by the Ministry. The activities/initiatives undertaken by the with the Government of Rajasthan.

PRESIDENTS
COMMUNIQUE
CPD Activities IT Department, were launched: Companies Act 2013 mandates cost ac-
During the month webinar was organized CMA Connect Mobile App: This will countants to conduct the internal audit
on 'Stock Audit of Banks'. The session help members and students to receive of the companies. The Institute in order
was well received by the large number updates from the Institute on their An- to enhance the capacity building and to
of CMAs. The Institute organized a pro- droid Mobile Devices. iOS and Windows support members of the Institute to carry
gram in an academic collaboration with version of the App would be launched out the internal audit of various sectors
SCOPE on 'Service Tax-Compliances' at soon. of the Industry also bringing out guidance
New Delhi. There was overwhelming re- Student Portal: This is one-stop-shop notes on Internal Audit Guidance Notes
sponse from the Public Sector Enterpris- portal catering to all the requirements of shortly. The Guidance Notes apart from
es and sessions were very much appre- the students ranging from access to noti- providing the general guide on general
ciated by the participants. I am happy to fication, Online Services, Administration, principles relating to internal audit in ERP
inform that during the month our Regional Academics, Resources, Training, Exami- Environment, also cover sector specific
Councils and Chapters actively organized nation and Placements. portion, giving the brief about the sector,
many programs, seminars and discus- President Portal: This will help mem- government policies and rules, legal and
sions for the members on the topics of bers and students to know more about regulatory framework, technical peculiar-
professional relevance such as on MCA E the schedule of the President, Events at- ities, special transactions and activities
Forms, Cost Audit under the Companies tended by him and will also enable them of the sector and internal audits thereof. I
Act, 2013, Limited Liability Partnership, to reach out to him with ideas and sug- urge the members to extensively use the
Understanding MVAT, Corporate Gov- gestions. Through the Presidents Desk Guidance Notes on Internal Audit of Phar-
ernance & Independent Directors, Total on this portal, President would also com- maceutical Industry and Stock Brokers
Quality Management, Enterprise Risk municate to the stakeholders. & Depository Participants as reference
Management, Excise, Service Tax and Dashboard for Council Members: On- technical guides.
Cost Audit, Issues in Capital Gains, Man- line Dashboard for the council members
agement Accounting-A Strategic Empha- to provide quick access to the facts and Research & Journal Directorate
sis, IFRS and its applicability, Mergers updates of the Institute. A meeting was held at Tezpur Universi-
& Acquisitions, Advance Tax, TDS and ty, Assam (a Central University) on 18th
Tax Planning, Negative List of Services, Membership Department August, 2014 on the issues of Recogni-
Workshop on Karnataka Value Added Tax In my earlier communiqu, I had mention of the qualification of the members
(K-VAT), Union Budget 2014-2015, Scope tioned about the initiative to launch a of the Institute for pursuing Ph.D program
of CMAs in Banking and Financial Institu- vigorous membership drive to increase and collaborative research activities.
tions, and so on. the number of Members. I call upon all Professor Mihir Kanti Chaudhuri, Vice
final passed students having requisite Chancellor, Tejpur University, Profes-
Exams Directorate experience to apply for Associate mem- sor Subhrangshu Sekhar Sarkar, Dean,
The June 2014 Intermediate and Final ex- bership of the Institute. In regard to pay- School of Management Sciences, Tejpur
aminations results were declared on 23rd ment of membership fee for FY 2014-15 University, Dr. Biren Das, Registrar, Tejpur
August 2014. I congratulate the students which became due on 1st April 2014, it University, CMA Manas Kumar Thakur,
who have passed the examinations and is observed that some of our esteemed Central Council Member of the Institute,
wish them a very bright and successful members have not yet made payment CMA Bibekananda Mukhopadhyay, Sec-
carrier. I urge upon those students who of their membership fees. I urge upon all retary, EIRC of the Institute were among
could not pass the exams this time, to such members to make their member- the dignitaries present in the meeting.
gear up for the next term examinations. ship fee payment before 30th September The meeting was highly successful. An
2014 to continue to avail the benefits of MoU is proposed to be signed shortly in
International Affairs Department membership. this regard.
The next SAFA Events are scheduled to I wish prosperity and happiness to
be held at Dhaka during 9-10th Septem- Professional Development members, students and their family on
ber 2014. Representatives from the Insti- Directorate the occasion of Onam and Navaratri.
tute will be attending the meetings. The The Institute has released two guidance With warm regards,
IFAC-PAIB committee is meeting on Sep- notes on Internal Audit of Pharmaceu-
tember 22-23, 2014 at Newyork, USA. tical Industry and Stock Brokers & De-
pository Participants. The softcopy of
IT Department these guidance notes are available on
I am happy to inform that on the auspi- the Institute website. The print of these
cious occasion of Independence Day, the guidance notes shall be available to (CMA Dr A S Durga Prasad)
following applications developed by the members shortly. Section 138(1) of the 2nd September 2014

ICAI-CMA SNAPSHOTS
1 3
5
Indian flag on 68th Independence Day of India at the Headquarters of
the Institute in Kolkata
3. The President, CMA Dr. A.S. Durga Prasad, with Central Council
Members and Regional Council Members of the Institute in a meeting
at SIRC
4. The President, CMA Dr. A.S. Durga Prasad, with Central Council
Members and Regional Council Members of the Institute at SIRC
2 5. A visit to Tezpur University on August 18, 2014 on the issues
of recognition of the members of the Institute for pursuing Ph.D
1. CMA Dr. A S Durga Prasad, President of the Institute being programme and Collaborative Research Activities. In the photo seen
felicitated by Mr. D S Rawat, Secretary General, Assocham. Also seen are Prof. Mihir Kanti Chaudhuri, Vice Chancellor, Tezpur University, Prof.
in the photo are CMA Rakesh Singh, former President, Mr Babulal Subhrangshu Sekhar Sarkar, Dean, School of Management Sciences,
Jain, Sr. Managing Committee member and Mr U K Joshi, Director, Tezpur University, CMA Bibekananda Mukhopadhyay, Secretary, EIRC,
Assocham and CMA Manas Kumar Thakur, Chairman, Research Innovation and
2. CMA Dr. A. S. Durga Prasad, President of the Institute hoisting the Journal Committee of the Institute.

ICAI-CMA SNAPSHOTS
7 9
at EIRC Auditorium on August 16, 2014.
Seen L-R: Shri Partha Mukherjee, Addl SP, CBI, Anti Corruption Branch,
Kolkata, CMA Mrityunjay Acharjee, Associate Vice President, Balmer
Lawrie & Co. Ltd, Shri Sukamal Basu, former CMD, Bank of Maharashtra,
Janwab Khalid Aziz Anwar, Sr. Joint Commissioner, Commercial Taxes,
Govt of West Bengal, CMA Manas Kumar Thakur, Chairman, Research,
Innovation and Journal Committee, Shri Debashish Sarkar, General
Manager & Chief Vigilance Officer, Allahabad Bank, Prof. Sanjay Banerji,
Professor of Finance & Head of the Group, Nottingham University, U.K.
were the eminent dignitaries on the dais.
8. The Chairman and other members of Quality Review Board (QRB)
welcoming CMA N K Bhola, Regional Director (East & North East),
MCA in the 18th Meeting held in Delhi office on August 14, 2014.
Seen L-R: CMA V Kalyanaraman & CMA Kunal Banerjee, Members,
CMA R S Sharma, Chairman, CMA A S Bagchi, Secretary of QRB,
8 CMA N K Bhola, Regional Director (East & North East), special invitee
and Shri Pramod Kumar, Member of QRB.
6. CMA Dr. A.S. Durgaprasad, President and CMA Dr. S.C Mohanty,
Immediate Past President of the Institute at the inauguration of E 9. 18th Meeting of Quality Review Board (QRB) in progress in Delhi
Library at Bhubaneswar Chapter of the Institute on August 23, 2014. office on August 14, 2014.
The E Library was inaugurated by Shri Pradip Kumar Amat, Honble Seen from left: CMA V Kalyanaraman & CMA Kunal Banerjee,
Cabinet Minister of Finance & Public Enterprises, Govt. of Odisha. Members, CMA R S Sharma, Chairman, CMA A S Bagchi, Secretary
7. A Round Table Discussion on Forensic Accounting and Auditing of QRB, Shri Pramod Kumar, Member of QRB and CMA N K Bhola,
organized by the Directorate of Research & Journal of the Institute held Regional Director (East & North East), MCA, special invitee.

theMANAGEMENT
ACCOUNTANT
THE JOURNAL FOR CMAs ISSN 0972-3528
PAPERS INVITED
Cover stories on the topics given
below are invited for The Management
Accountant for the four forthcoming
months.
Issue months Themes Subtopics
Uniqueness of Municipal Accounting

Urbanism & Consumption Amenities
Rural-Urban continuum & environmental issues
Urban Development and
October 2014 Financing urban infrastructure & town planning
Economic growth Performance Evaluation parameters of Urban Projects
Project monitoring for sustainable growth
Comparative Analysis of Urban Projects India & Abroad
Pricing of agricultural products and its marketing
Cost of input, storage, distribution, R&D and its analysis
Drop out problem of agricultural land and labour
November 2014 Agriculture and the Indian Economy Food security
Application of cost management in agriculture
Accounting of agricultural activities
Agriculture and sustainable economic growth
Human Resource Accounting
HRIS for strategic decision making
Ethical HR and Governance for sustainable growth
Strengthening Human Resource Cross-cultural issues in HRM
December 2014
Building the Nation Industrial relations and challenges in the new era
Compensation and benefits for effective talent management
Performance management for strategic goal setting
Case Studies
Cost of Risk & Risk Based Internal Audit
SARFAESI Act & Vigilance
Risk mitigation techniques and models
NPA Management and Corporate Basel norms and stressed assets
January 2015
Debt Restructuring (CDR) CDR / ARC / DRTs and redressal structure
Cost implication of NPAs
Role of Independent Evaluation Committee (IEC)
Credit appraisal & its Audit
The above subtopics are only suggestive and hence the articles may not be limited to them only.
Articles on the above topics are invited from readers and authors along with scanned copies of their
recent passport-size photograph and scanned copy of declaration stating that the articles are their
own original and have not been considered for publication anywhere else. Please send your articles
by e-mail to editor@icmai.in latest by the 1st of the previous month.
Directorate of Research & Journal

The Institute of Cost Accountants of India (Statutory body under an Act of Parliament)
CMA Bhawan, 4th Floor, 84 Harish Mukherjee Road, Kolkata - 700 025, India
Board: +91-33- 2454 0086 / 87 / 0184, Tel-Fax: +91-33- 2454 0063
www.icmai.in
14 THE MANAGEMENT ACCOUNTANT JULY 2014 www.icmai.in

ECONOMY UPDATES
Customs Here specified organisation means exports benefits/ incentives under the
Foreign Trade Policy, 2009-14, at par
Increase in customs duty on raw as
(a) Kumaon Mandal Vikas Nigam with export proceeds realized in freely
well as refined/white sugar from 15% to
Limited, a Government of Uttarakhand convertible currency vide Notification
25% vides notification no. 26/2014-Cus, No. 89 (RE-2013)/2009-2014 dated: 6th
Undertaking; or
dt 21-08-2014. August, 2014.
(b) Committee or State Committee as
As per Notification No. 02/2014
defined in section 2 of the Haj Committee
Cus. (SG), dt 13-08-14, safeguard duty
Act, 2002 (35 of 2002). SEBI
has been levied on imports of Seamless
Pipes and Tubes into India for a period of Expansion of framework of Offer
Income Tax
two and a half years. for Sale (OFS) of Shares through
Agreement for Avoidance of stock exchange mechanism
Anti-dumping duty double taxation and prevention Comprehensive guidelines on sale of
of fiscal evasion with foreign shares through Offer for Sale mechanism
Levy of definitive anti-dumping duty countries Malta were issued vide circular no CIR/MRD/
on imports of sodium nitrite, originating In exercise of the powers conferred by
in or exported from the European Union, DP/18/2012 dated July 18, 2012. These
section 90 of the Income-tax Act, 1961 guidelines have been modified vide
for a further period of five years vide (43 of 1961), the Central Government
notification no. 37/2014-Cus (ADD), dt. circulars dated CIR/MRD/DP/04/2013
hereby directs that all the provisions of dated January 25, 2013 and CIR/MRD/
08-08-2014. said Agreement and the Protocol between DP/17/2013 dated May 30, 2013. The
Extension of the validity of the Government of the Republic of India
OFS mechanism has been successfully
notification No. 119/2010-Customs and the Government of Malta for the
used to divest promoter stake, market
dated 19.11.2010 for a further period of avoidance of double taxation and the
feedback indicated that there is a need
one year vide notification no. 38/2014- prevention of fiscal evasion with respect
to take measures to encourage retail
Cus (ADD), dt. 13-08-2014. to taxes on income with effect from the
participation in OFS, enable other large
Levy of definitive anti-dumping 1st day of April, 2015 vide notification
shareholders to use the OFS mechanism
duty on imports of Ceftriaxone Sodium no. 34/2014 dated 5-8-2014 Income
and expand the universe of companies
Sterile originating in or exported from Tax.
to use this framework vide Circular no
the People's Republic of China, for a
- CIR/MRD/DP/ 24 /2014 dated: August
period of five years vide notification no. DGFT 08, 2014.
39/2014-Cus (ADD), dt. 14-08-2014.
Export Policy of Onions - Export
Service Tax of onion for the item description at Monitoring of Compliance by Stock
Serial Number 51 & 52 of Chapter 7 of Exchanges - As per Clause 5.2 of the
In exercise of the powers conferred
Schedule 2 of ITC (HS) Classification Circular dated November 18, 2013 and
by sub-section (1) of section 93 of
of Export & Import Items shall be the provisions of the revised Clause 49
the Finance Act, 1994 (32 of 1994),
permitted subject to a Minimum Export which are scheduled to take effect from
Central Government exempts services Price (MEP) of US$ 300 per Metric Ton
by a specified organisation in respect October 01, 2014, all recognized stock
F.O.B vide Notification No. 91 (RE
of a religious pilgrimage facilitated by exchanges are advised to step up and
2013)/2009-2014dated: 21 August,
the Ministry of External Affairs of the 2014. equip their monitoring framework to
Government of India, under bilateral identify and monitor such practices and
arrangement, from the whole of the to ensure that requirements laid down
service tax leviable thereon under section Export benefits / incentives by Principles of Corporate Governance
66B of the said Act vide Notification against exports to Iran - Export in the revised Clause 49 of the Listing
No.17/2014 - Service Tax dated: 20th proceeds against exports to Iran realized Agreement vide Circular No. CIR/CFD/
August, 2014. in Indian rupees are permitted to avail DIL/4/2014 dated: August 01, 2014.

ECONOMY UPDATES
Banking to permit Non-Deposit Accepting NBFCs existing Guidelines on Mortgage
with asset size of Rs. 100 crore and Guarantee Companies vide notification
Prudential Norms on Income
above to act as sub-agents under MTSS no. RBI/2014-15/170 [DNBS (PD) CC.
Recognition, Asset Classification
subject to the following conditions: No.20/MGC/03.011.001/2014-15] dated:
and Provisioning Pertaining
There is no co-mingling of the Indian August 08, 2014. For more details please
to Advances - Projects under
agents funds with that of the NBFCs visit: http://www.rbi.org.in> Notifications.
Implementation
funds.
As per Notification no: RBI/2014-15/182
The Indian agent should maintain
[DBOD.No.BP.BC.33/21.04.048/2014- RRBs - Monetary Policy
with a designated bank, a security
15] dated: August 14, 2014, banks has Statement 2014-15 SLR Holdings
been allowed to fund cost overruns, deposit in favour of the NBFC sub-agent.
The amount of the security deposit under Held to Maturity Category
which may arise on account of extension
to be maintained may be mutually RRBs are permitted to exceed the limit
of date of commencement of commercial
decided between the Agent and the of 25 per cent of total investments
operations (DCCO) within the period
sub-agent. It should be ensured that the under HTM category with effect from
of two years and one year from the
payouts of NBFC sub-agents pending August 9, 2014, provided the excess
original DCCO, without treating the loans comprises only SLR securities, and the
as restructured asset subject to the reimbursement by the agents should not,
at any point of time, be higher than the total SLR securities held in the HTM
following conditions:
security deposits. category is not more than 24.00 per
No NBFC, acting as sub-agent, cent of their NDTL vide notification
i) Banks may fund additional Interest
should appoint any other entity as its no RBI/2014-15/168 [RPCD.CO.RRB.
During Construction, which may arise
sub-agent. BC.No.25/03.05.33/2014-15] dated:
on account of delay in completion of a
August 7, 2014.
project; Source: Notification no: RBI/2014-
ii) Other cost overruns (excluding Interest 15/174 [DNBS.CC.PD.No.
During Construction) up to a maximum 405/03.10.01/2014-15] dated: August StCBs/CCBs - Section 24 of the
of 10% of the original project cost; 12, 2014 Banking Regulation Act, 1949
(AACS) Maintenance of Statutory
iii) The Debt Equity Ratio as agreed at the
Liquidity Ratio (SLR)
time of initial financial closure should Interest Rate Futures NBFCs
remain unchanged subsequent to funding As announced in the Third Bi-monthly
All non-deposit taking NBFCs with Monetary Policy statement 2014-15
cost overruns or improve in favour of
asset size of Rs 1000 crore and above by Reserve Bank of India on August 5,
the lenders and the revised Debt Service
may also participate in the interest rate 2014, it has been decided to reduce
Coverage Ratio should be acceptable to
futures market permitted on recognized the Statutory Liquidity Ratio (SLR) of
the lenders;
stock exchanges as trading members, State/Central Cooperative Banks from
iv) Disbursement of funds for cost subject to RBI/ SEBI guidelines vide 22.5 per cent of their Net Demand and
overruns should start only after the notification no RBI/2014-15/173 [DNBS. Time Liabilities (NDTL) to 22.0 per cent
Sponsors/Promoters bring in their share CC.PD.No.406/03.10.01/2014-15] dated: with effect from the fortnight beginning
of funding of the cost overruns. August 12, 2014. August 9, 2014 vide notification
no: RBI/2014-15/166 [RPCD.RCB.
Appointment of Non-Deposit BC.No.22/07.51.020/2014-15] dated:
Accepting NBFCs with asset size Modification of Guidelines on August 06, 2014.
of Rs 100 Crore and above as Mortgage Guarantee Companies
sub- agents under Money Transfer (MGCs) - (For further details on these issues,
Service Schemes (MTSS) please visit the Institutes website:
In view the long term beneficial
www.icmai.in for the complete CMA
In order to broaden the network of sub- impact of development of the Mortgage E-Bulletin, September 2014, Vol 2, No.
agents under the Money Transfer Service Guarantee industry, it has been decided 9, in the Research and Publications
Schemes (MTSS), it has been decided to make certain modifications to the section.)

PROGRAMME FOR SYLLABUS 2008 PROGRAMME FOR SYLLABUS 2012
Day, Date Intermediate 2008 Final 2008 Intermediate 2012 Final 2012
& Time 9.30 A.M. to 12.30 P.M. 2.00 P.M. to 5.00 P.M. 9.30 A.M. to 12.30 P.M. 2.00 P.M. to 5.00 P.M.
Wednesday, Capital Market Analysis Corporate Laws and
----- Financial Accounting
10 th December, 2014 & Corporate Laws Compliance
Thursday, Financial Management Laws, Ethics and Advanced Financial
Financial Accounting
11 th December, 2014 & International Finance Governance Management
Friday, Commercial and Industrial Management Accounting Business Strategy &
Direct Taxation
12 th December, 2014 Law & Auditing Strategic Management Strategic Cost Management
Saturday, Indirect & Direct Cost Accounting & Tax Management
Applied Direct Taxation
13 th December, 2014 Tax Management Financial Management & Practice
Sunday, Cost & Management Management Accounting Enterprise Operation Management Strategic
14 th December, 2014 Accounting Performance Management and Information Systems Performance Management
Monday, Advanced Financial Corporate Financial
___ Cost & Management Accountancy
15 th December, 2014 Accounting & Reporting Reporting
Tuesday, Operation Management Cost Audit & Cost &
Indirect Taxation
16 th December, 2014 and Information Systems Operational Audit Management Audit
Wednesday, Company Accounts and Financial Analysis &
Applied Indirect Taxation Business Valuation Management
17 th December, 2014 Audit Business Valuation
EXAMINATION FEES
Final Intermediate
Group (s)
Examination Examination
One Group (Inland Centres) 1400/- 1200/-
(Overseas Centres) US $ 100 US $ 90
Two Groups (Inland Centres) 2800/- 2400/-
(Overseas Centres) US $ 100 US $ 90

COVER
PRESIDENTS
STORY
COMMUNIQUE
FORENSIC
ACCOUNTING IN
THE CYBER WORLD:
A NEW CHALLENGE
FOR ACCOUNTANTS
In many corporate
environments, data exists
not only on one employees
personal computer (PC), but on
a server (or multiple servers).
Advances in cloud technology,
with data stored at offsite
locations across town or across
the world, further complicate
forensic efforts
F ORENSIC accounting, fo-

rensic accountancy or finan-
cial forensics is the specialty
practice area of accounting that de-
scribes engagements that result from
also referred to as forensic auditors
or investigative auditors, often have
to give expert evidence at the even-
tual trial.
actual or anticipated disputes or lit- The need for forensic accounting

igation. "Forensic" means "suitable Accounting is an age old system
for use in a court of law", and it is to with conventional idea of a numeric
CA Sukamal Basu
Former CMD, Bank of
that standard and potential outcome transaction purpose wise and chron-
Maharashtra that forensic accountants generally ologically. Conventional accounting
have to work. Forensic accountants, could not bring into light many fi-

nancial irregularities appropriation Corporate strategies could not the globe became usual practice in
and expropriation detrimental to be constructed with historical data. the accountancy profession.
stakeholders. Corporate irregularities in India
With complex trade pattern with starting with Mundra case made Evolution
international angle it was seen to people concern about the efficacy of IT came in the picture for combat-
be inadequate to the expectation of historical data for arresting fraud and ing the situation arising from Enron
corporate culture. Governance was irregularities and adhere to increased case to Rajat Gupta case and Satyam
held to be central theme but ortho- compliance requirements and trans- Case. Companies Act 2013 preceded
dox transactional audit and account- parency need. To cope with the dy- by American law and British brib-
ing system did not cope with the namic situation continuous revision ery act demanded for a different
expectations. of accounting standards throughout approach for preventing economic

COVER
PRESIDENTS
STORY
COMMUNIQUE
fraud and preserving national wealth. gation methodology. Therefore right other validation techniques. For ex-
For proper risk management rep- technology is required to be placed ample scoring model with multiple
utational risk was to be managed on the IT platform. risks attributes.
which involves effective E manage- Regulation of US FCPA and UKs Continuous monitoring pro-
ment business process reengineering Bribery act require compliance with gramme (CMP) will deter fraud.
corporate governance and proper IT mandate for electronically stored in- CMP involves use of forensic tech-
platform. The occasion of fraud and formation. nologies in data mining for identify-
irregularities and lapses in compli- ing suspicious transactions. This is to
ance culture necessitated proper in- Risk be coupled with E-discovery solu-
vestigation thereof and a strong pre- Risk persists because personal in- tion, processing of which will throw
ventive environment. formation deleted in mobile phones light on the suspects. Digital forensic
Thus forensic accounting was can be retrieved and misused. also known as computer forensic will
called for to detect planning of the Risk arises also because digitized help compliance culture and will re-
fraud, execution of the fraud, conse- information resides in hard drives veal Email traces of the origin of the
quences of the fraud and book the and is unsecured and require con- data.
culprits without much time lag. tinuous monitoring programme in-
Fraud cluding governance of risk and com- Various techniques of forensic
Forensic accounting approach differs pliance tools. Cyber crime is a great accounting
from auditing, investigation, enquiry threat to the system. Expansion of Conventional accounting tools like
etc. One of the attributes of forensic business geographically and organi- trend analysis, ratio analysis, fund
accounting is the retrieval of con- cally means more risk. Vintage tool flow analysis, cash movement analysis
cealed data most essential for inves- for risk mitigations in an expanding are to be supplemented by forensic
tigation in the economic offences. organisation is a great threat. There- technology for source data and few
Recent investigation in the sub-ju- fore new tools e.g Data visualization, other forensic accounting tool like
dice case of Sarada chit fund is an statistical analysis, text mining con- BENFORDS LAW, theory of Rel-
example. cepts etc are required to be adopted. ative size factor, computer assisted
Economic offences are essentially Incompatibility of data and tech- auditing tools to process data of audit
conspiracies seldom committed by nology with In house tools may not significance in the IT platform, data
one person. Trace of evidences and cope with increasing risk. mining techniques etc.
the interpretation of the evidence Benford's Law, also called the
from IT systems is the domain of fo- Strategies to be adopted First-Digit Law, refers to the fre-
rensic audit and investigation. Foren- Strategies to be adopted for proper quency distribution of digits in many
sic accounting technology emerged data interpretation in high velocity (but not all) real-life sources of data.
for managing compliance risk and mass of data are required for moni- In this distribution, the number 1
reputational risk arising from fraud. toring compliances. occurs as the leading digit about 30%
With cooperation from UK, USA More sophisticated technologies of the time, while larger numbers
and other countries a global front then use of spreadsheet and database occur in that position less frequent-
was created to combat cross-border application is necessary to combat ly: 9 as the first digit less than 5% of
fraud and bribery and an initiative the changing milieu in the business the time.The figures are subjected to
was taken to make the technology of environment. Statistical tools that parametric test called Z test and var-
forensic audit more meritorious and have predictive modelling and risk iance between Benfords % no. and
effective. coding algorithms will be able to observed no. decides the amount of
Fraud is complex maneuvering stop improper payment with lack of confidence on the mass of data of
and investigation of data for fraud propriety. Effective use of text min- both the % matches, it means there
detection is humongous. Culprits are ing tools is also a dire necessity. is no chance of error.
using sophisticated technologies in Along with these use of data The purpose of the Relative Size
committing frauds.To withstand this, matching techniques with watch list Factor test (RSF) IDEA Script is to
cutting edge technologies and ana- is required to prevent occurrence of identify anomalies where the largest
lytics is to replace stereo type investi- fraud.These may be accompanied by amount for subsets in a given key

is outside the norm for those sub- -Improves data integrity; electronically in your organization.
sets. This test compares the top two -Fraud detection mechanism; and How do you track and organize the
amounts for each subset and calcu- -Cost effective data so that it can be recovered in a
lates the RSF for each. Utilizing the Data Mining is an analytic process meaningful way? Data even exists on
largest and the second largest amount designed to explore data (usually your systems about your data (this
to calculate a ratio based on purchas- large amounts of data - typically busi- type of information is called meta-
es which are grouped by vendors, in ness or market related - also known data). In many corporate environ-
order to identify potential fraudulent as "big data") in search of consistent ments, data exists not only on one
activities in invoice payment data, patterns and/or systematic relation- employees personal computer (PC),
has often been suggested as means of ships between variables, and then to but on a server (or multiple servers).
fraud examination. validate the findings by applying the Advances in cloud technology, with
Computer Assisted Audit Tools detected patterns to new subsets of data stored at offsite locations across
and Techniques refers to the use of data. The ultimate goal of data min- town or across the world, can serve
any computerized tool or technique ing is prediction. The process of data to complicate forensic efforts neces-
which increases the efficiency and mining consists of three stages: sary to retrieve relevant information,
effectiveness of the audit function (1) The initial exploration such as files with critical information
CAATs are useful for: (2) Model building or pattern identi- that log access attempts, file modi-
-Management of control deficien- fication with validation/verification fications, deleted files and more are
cies and risk; (3) Deployment stored on both local PCs and on
-Investigation of 100% data popula- servers. Forensic accountants use this
tion; Forensic Accounting: type of data to investigate deeper into
-Identification of business improve- Beyond the basics the transactions performed constant-
ment opportunities; Consider how much data is stored ly within a companys systems. Re-
trieval of specific information over a
far flung array of computers, smart-
phones and servers can be a daunting
task, especially when knowledge of
accounting theory is required to de-
FORENSIC ACCOUNTING HAS COME UP termine data relevance.
AS AN EFFECTIVE TOOL FOR PREVENTING Conclusion
WHITE COLLAR CRIMES. IT IS STILL The major concern of the country is
to prevent white collar crimes which
IN A NASCENT STAGE AND REQUIRES affect the very fabric of the society.
Forensic accounting has come up as
TECHNOLOGICAL REINFORCEMENT ON an effective tool for preventing this
menace. It is still in a nascent stage
A CONTINUOUS BASIS AND GLOBAL and requires technological reinforce-
COOPERATION. IT WILL DEVELOP ment on a continuous basis and
global cooperation. It will develop as
AS A SPECIALISED PROFESSION OF a specialised profession of account-
ancy and its importance to law en-
ACCOUNTANCY AND ITS IMPORTANCE TO forcing agencies and also regulators
will increase day by day. Lot of re-
LAW ENFORCING AGENCIES AND ALSO search is also needed and accountants
REGULATORS WILL INCREASE DAY BY DAY will play a very significant role in this
mission.
sukamal_1946@yahoo.co.in

COVER
PRESIDENTS
STORY
COMMUNIQUE
T he word foren-
sic underscores
the application
of scientific methods and
techniques to the investi-
goals. In our scheme of
thought, both past and
present coalesce to form
a whole, seeking to pres-
ent the work-frame of a
gation of crime, as much company as the owner of
as it is concerned with all its assets as a discrete
courts of law. In effect, Dr. P. Chattopadhyay entity, with profit accru-
forensic accounting re- Former Director, als to itself as remuner-
fers to the application of Research, ICAI-CMA ation of the fourth factor
accounting principles, Kolkata of production. While the
theories and discipline to company does engage
facts and hypotheses at itself in creating socially
issue in a legal context, required utilities, includ-
A THEORETICAL
embracing litigation or ing both products and
any other form of dispute services, accounting for
resolution such as arbitra- all the resources garnered
CONSTRUCT
tion. Forensic accounting and deployed for this
encompasses all account- purpose, audit ensures
ing and financial analyses that all these productive
OF FORENSIC
performed for assisting efforts remain centripetal
counsel in connection to the objectives of the
with investigation, assess- company, as detailed in
ment and proof of issues the objects clause of the
in a dispute-resolution
proceeding. All this in-
volves skilful gathering
ACCOUNTING Memorandum of Associ-
ation, which is the de fac-
to charter of its existence.
and reconstructing fi-
nancial evidence
solving problems within
and AND AUDITING Collocation of account-
ing and auditing figures
in forensic exercises as
the context of the rules complements, insofar as
of evidence and the le- the two together afford
gal system. Analysis and In the ultimate analysis, construction of evidence
reconstruction of doc- forensic accounting and and having a relook at
umentary evidence and what has been made out.
information, tracing of forensic auditing are In its day-to-day oper-
funds, location of assets concerned with finding ations a company has to
and interpretation of dif- contend with a great
ferent business transac- the truth to help punish many forces that tend to
tions figure prominently the guilty and protect the threaten its operational
in the scheme of things of standing right from the
the forensic accountant. innocent stage of supply chains
The meaning of audit, on to the markets where it
the other hand, embraces earns its life-blood, profit.
the regular and system- In this process, the com-
atic review and appraisal pany encounters bellig-
of factors and forces that erent forces all along the
contribute to the reali- line, earnestly attempts to
zation of organizational respond to the multiple

requirements of the law in its struc- Other peoples money and all the booty accruing to them
tural and functional designs seek- Managing other peoples money is is a prior charge on profit.The hith-
ing to ensure smooth functioning no small job and the charge of inef- erto invisible hand has since been
day-to-day. In addition, there are ficiency hangs over the heads of all found visible and identified as be-
also numerous operational tit-bits managers placed in charge of corpo- longing to professional managers
underlined by the long emerging rate functions in a continuous game relying more on techniques com-
cult of managerialism in its multiple of thrustparrythrust for outdoing manded by what has been called
manifestations, seeking excellence competition, albeit the fact that their the new science of decision making,
in every nook and corner of the discrete contribution to the wealth seeking to raise managerial activities
companys inside and outside. creation process is yet not certain to a high level of profundity, though

COVER
STORY
the illusion of shareholders owning by crook, in conditions where the is but natural that their day-to-day
corporate property continues un- shareholders are already turning operations remained verily under the
abated. However, behind all these themselves into fugacious entities scanner so that they kept themselves
tall talks and overt sophistication of surfacing only on the declared re- on track as thrusters, rather than as
styles of management lies misfea- cord date for getting the benefits sleepers. Peculation takes place in re-
sance, greed and autocratic outlook of dividend-induced price hikes gard to the corporate coffers under
as Kenneth Lay of Enron, Bernard in the stock market, so they not the mistaken belief that managers
Ebbers of WorldCom and a whole only get higher dividends but also own corporate property and there
host of top, middle and lower lev- a much more-than-proportionate is nothing wrong when high level
el managers throughout the world, higher price for their share holdings. managers draw money under various
covering both north and south It suits shareholders hankering after pretexts for purposes of their own,
signifying that corporate prop- easy money to figure as share traders which is tantamount to embezzle-
erty belonged to them demon- rather than as share investors. Foren- ment. Their T.A. Bills and D.A., for
strated beyond question. The Wall sic accounting gets itself into a sort instance, amount to huge sums even
Street Journal, for instance, report- of motivational cobweb in the pro- when they have been provided with
ed that Thomas Coughlin, former cess. Stock exchanges have figured means of transport and other facil-
Vice-chairman of Wal-Mart, was as the centre stage behind perpetra- ities. In our country, long back the
curiously and totally unexpectedly tion of fraud as the two stock market T.A bills drawn by the officers of a
found guilty of misappropriating $ scams in India have proved beyond large public corporation came un-
500,000, through fraudulent reim- any doubt. Treating corporate funds der the scrutiny of a Parliamentary
bursements and improper use of gift as other peoples money, than the Committee that found many of the
cards. The amount was quite small, companys own, is at the root of all practices irregular and they involved
considering his high position and this, as much as the fact that stock a gargantuan sum of money. Perfidy
the fat salary and perks to which he market proceedings do not affect a in such cases takes many colours and
was entitled but he could not resist companys share capital. shapes, not always in clear contours
the temptation and the amount but invariably gathering momen-
was the cumulative total of rather Peculation tum till reaching the finale. High
small withdrawals over a period of There is nothing private with re- and middle level managers are au
time. Fraud surveys in the corporate spect to corporate functions; funds fait with not only the management
world are basically concerned with of the corporation are public funds, techniques under their focus, but
people belonging to the lower rungs belonging to itself, as long as it is a also with all those peripherals that
in the hierarchy; those belonging going concern, an undying entity. would fatten their pockets, irrespec-
to the upper echelons generally es- Misappropriation of corporate funds tive of their status in the organiza-
cape notice. Coming to think of it is an act of peculation. Fallibility is tion, high scales of salary and perks,
seriously, the money that a corpora- not the exclusive preserve of the defying all tenets of the upper stages
tion garners through subscription to lowly, as the happenings in almost of A. F.Maslows need hierarchy. The
shares belongs to the corporation as all countries of America, Europe and apodictic truth is that unless ways are
long as it is a going concern and Asia, including our very own, re- found and fairly sensitive methods
this is a continuing state as it cannot cently demonstrated. All this, despite are put into play, it would be difficult
die and enjoys perpetual succession. the proclaimed managerial-opera- to rein in all those centrifugal traits
This aspect remains undermined in tional sophistication bringing at play and habits of individuals, irrespective
the literature on the subject most all kinds of tools and techniques for of their ranks and nature of exposure
of the time. The shareholders can, unravelling what lies in the future, to various activities of a company.
if they so wish, unload their hold- which happens to be the nub of the Such activities encompass a large
ings in the stock market; that this decision making processes, attesting number of issues that involve many
has already become a potent force what Peter F. Drucker called mak- centrifugal forces, only partially vis-
is attested by the over-anxiety of ing the future to-day. As products of ible as faint signs at the beginning,
the top management of companies the law that the companies are, with but affecting adversely the opera-
to strike the numbers, by hook or very large stakes and involvement, it tional contours of a company in the

long run. Thus, the focus on foren- whistle blower may himself be im- Dr Sarma was himself eased out of
sic checks and balances as a plank plicated under different pretexts for his position. Ultimately, however, it
of the usual day-to-day operations bringing unsavoury charges, having was the World Bank that caused the
derives its strength and relevance been denied access to the records downfall of the company, resulting
from the crying need for keeping that could prove beyond doubt the in putting Rama Linga Raju in jail,
the operative forces on track, with all veracity of the points at issue. while the funds involved in the scam
the back-up resources in place, em- ran to quite a hefty sum of 7,000
bracing the inside and the outside of The underlying Indicia crores of rupees.Two partners of one
the corporate precincts. It is the in- It is thus important that all financial, top audit firm of the country were
terest of the company both in the operational and commercial activi- reportedly involved in the scam. Sat-
short and the long run - ensuring ties as also other related issues came yam Computers Ltd., later became
its growth in chosen directions, in under scrutiny throwing up overt or Mahindra Satyam first, and then, ul-
a world of business marked by keen covert hints stirred the forensic in- timately taken over by TechMahin-
competition and rapidly changing vestigators into action, without those dra Ltd. The scam involved account
consumer tastes, that offers the bulls involved in gypping knowing it. Such fabrication, fraudulent diversion of
eye. Forensic accounting and audit- investigators do their job in the garb funds, money laundering, foreign
ing ensure that the company does of assignees of a variety of tasks and exchange manipulation, insider
operate in an atmosphere congenial responsibilities so that likely culprits trading, criminal breach of trust, in-
to the realization of its objectives, do not suspect that their activities are come tax violation and round trip-
encountering all the disruptive forces under watch. This is a tricky job but ping of ill-gotten wealth.The lessons
on its way. It is imperative to ensure, the lure of easy gain is so much that are loud and clear to the effect that
however, that no atmosphere of sus- many a time the suspected culprits timely top management and gov-
picion is created by the over-enthu- become reckless. However, when the ernmental action could surely have
siasm of the new genus of watchdogs forensic accounting and auditing are prevented many such disasters in the
even distantly disturbing normalcy a part of the overall accounting and corporate world. Stern Government
of the rather touchy decisioning internal control system, and all slip- action would have been quite appro-
phenomena within the organiza- pages are brought to the notice of the priate in his context because compa-
tion. The phrase, whistle blowing, is top management, possible culprits nies are products of the law and have
avoided in this context because of become cautious and they dare not perpetual succession, owning their
the inherent complications that the indulge in practices that might cause assets and owing their liabilities. As
phrase conveys, insofar as the fraud- trouble in the end. Laxity on the part it happened, the officialdom chose
sters would not like to be identified of top and middle management may to turn the other way, till the World
without solid proof of their misdo- provide leeway to those below to in- Bank intervened for chastising the
ing, giving them a chance to erase dulge in unacceptable practices for culprit(s).
out the evidentiary details by way their personal grain. Possible perpe-
of either formalizing their deeds or trators of fraud may be caught in the Indicia glossed over
hiding all these critical details includ- act or they may be prevented from One would not have to go far for
ing papers or persons in collusion committing such act when regular seeking the indicia, they may have
with both insiders and outsiders of and systematic counterchecks are in been quite near at hand; unless time-
different descriptions. A better alter- place. This does not happen so easily ly actions were taken, huge resultant
native to whistle blowing is initiat- when top management is involved. loss could not be averted. Indicia in
ing public interest litigation, having The land scam in Satyam Computers the aforesaid context are many and
marshalled all the relevant evidence Ltd., was detected and brought to they may be available quite at hand
for arguments in courts of law, with the notice of the Ministry of Com- but the crux of the matter action
a judge as the arbiter and an effective pany Affairs and SEBI in 2001 by may be miles away, as proved in
decision maker offering protection Dr E. A.S. Sarma, Secretary, Eco- the Satyam case. To the right-mind-
to the plaintiff. Particularly when the nomic Affairs, in the Union Ministry ed top corporate managers, inter-
top brass of a company is involved, of Finance; instead of bringing the nal and statutory auditors, forensic
whistle blowing may misfire as the miscreants of the company to book, accountants, SEBI and the Gov-

COVER
STORY
ernment in the Union Ministry of have been guilty of creating confu- NY, pp. 135-136). Industrial espi-
Company Affairs, the indicia are in- sion, for instance, by way of creating onage and divulging secrets related
deed many, but initiating timely ac- a new category of companies called to products and processes and pol-
tion, both curative and preventive, is government companies on the basis icies related to placement, pricing
the point at issue, though all this was of fifty one plus percentage of share- and promotion, may cause irrep-
tantamount to begging the ques- holding, a virtual denial of a series of arable damage to the competitive
tion. The cases pending with the legal decisions to the contrary. Pub- strength of the company. Industrial
SFIO (Serious Fraud Investigation lic property and private property espionage has already become flour-
Office) as presented in the MCA have between them several features ishing business in many a country.
portal on the Indian Companies at that distinguish one from the oth- Infringement of patent laws, cap-
Work, 2011-12, seem apparently er; the public properties, as the say- ture of market segments or even
long-drawn, with the speedy res- ing goes, are much easier targets for change of pricing policies resulting
olution of disputes being a far cry! fraudsters to play their tricks. from such relationships may cause
There are of course good reasons harm of which symptoms are not
for the long time taken in settling Accounting practices reflected in the accounts immediate-
disputes, but the fact remains. There As several instances in the recent past ly. Forensic accountants may notice
are, however, no easy escape route have underscored, it is imperative such facts through indirect means,
for the two categories of companies that a company took essential meas- even by way of conversation with
which were granted the Certificate ures for protecting against the risk those concerned without giving any
of Incorporation by the authorities, that an officer or employee might overt impression regarding either the
namely vanishing companies and cook the books, alter certain figures purport of such conversation or the
dormant companies. Forensic ac- in order to boost performance orto effects thereof. Destructive tests of
countants, with their kitties of sharp hide problems. The law everywhere electronic or even other products,
tools and techniques, could prepare mandates that public limited com- on the basis of cues received from
necessary papers highlighting issues panies maintained accurate books, such apparently innocent conversa-
in frames of evidence for arguments records and accounts, develop sys- tion, could deal heavy blows to the
in courts of law, indicting the errant tems of internal controls to ensure future prospects of the company.The
entrepreneurs for launching on such that corporate assets can only be ac- net-spread of the forensic account-
misadventures causing huge dam- cessed in accordance with corporate ant thus goes beyond what appears
age and loss of public funds. It may policies. Intentional misstatement of in books of account, but does have
not be out of place to mention here finances or operating results would a high impact on the companys fi-
that several of the obnoxious issues constitute violation of law, making nances tracing, as he does, the actual
coming to light from time to time all those concerned liable to both and/or potential effects, both tech-
are systemic, like for instance, insid- civil and criminal charges, depend- nically and financially. Ideally, the fo-
er trading or stock market manip- ing on the facts of the situation. rensic accountant is an unassuming,
ulation for getting the certification Unholy relationships between the often silent, performer with a knack
by ESOP holders that everything employees or those outside a com- of going deep into the causality of
related thereto has conformed to panys employment, like the compa- events, collecting and tying threads,
the rules and regulations. As long as nys suppliers, spell disadvantage for having a direct impact on the com-
the system allows executives to play the company in a number of ways. panys finances such as the transac-
all kinds of shenanigan, it is hardly In many a case, such relationships tional review, operational functions,
possible to bring them to justice. end up in putting the company in funds movement, document analysis
Even otherwise, public interest lit- a disadvantageous position though and, finally, document reconstruc-
igations with respect to corporate these facts may not be quite in the tion, apart from the usual financial
scandals have been few and far be- know of the concerned managers matters, but not necessarily tied to
tween, mainly because of the be- and men. (Cf. Eugene M. Prop- them because each situation may
lief that companies belong to the per, Corporate Fraud Investigations be quite novel and non-repetitive
shareholders, majority shareholders, and Compliance Programs, Ocea- in character and content. To say the
for that matter. Even governments na Publications, Inc. Dobbs Ferry, least, funds movement, inquiry into

the details and contents of transac- resolution may indeed be better ex- tries and what may be an allowable
tions with impact on funds inflow plained and answered by the forensic practice in one country may be a
and outflow, sale and purchase of as- auditor than the forensic accountant. riddance in another.The contents of
sets with emphasis on the resolution In fact, there may indeed be role re- accounting and auditing practices as
of conflicts will have figured promi- versal, as between them, in different also approaches to detecting, formu-
nently in the focus-areas of forensics. cases for resolution in courts, depend- lating and dealing with various
ing on the specific areas of expertise transactional and disclosure prob-
Forensic auditing and experience in dealing with an lems bearing on many fraudulent
Collocation of forensic accounting issue. Some instances may drive the occurrences have already been quite
and forensic auditing suggests that distinction home. In our country, voluminous thanks to numerous ac-
the two are not exactly the same there are many practising chartered counting, auditing and cost account-
or even similar. While forensic ac- and management accountants with ing standards. However, as yet a good
counting does involve elaborate multidisciplinary specialisations. For lot of related issues and grounds have
inquiry and investigation into the untying the knots in specific points remained uncovered, considering
transactional typicality of the con- of dispute, such expertise may come the growing inter-country industrial
nected issues and events, the job of in handy in the context of deposing and commercial exchanges. These
forensic audit is to provide a dou- in courts, replying to questions asked expansions in the operational canvas
ble check on the consistency issues, by the learned judges in resolving a and other related matters have pro-
questions that the counsel may ask in dispute. In matters of identification vided a good ground for tricksters to
the context of arguing in courts.The of individuals on the basis of scanty dupe the uninitiated into commit-
construction of documents from the evidence such as tooth, hair, bone ting errors and practices punishable
titbits of evidence that the forensic drops of blood, thumb impression, under their laws in force. In this re-
accountant may have done could as etc., expertise in forensics has been spect, while the countries in Euro-
well be an inadequately framed doc- traditionally sought and accepted pean Union and America have more
ument, leaving gaps with respect to in identification of culprits for in- or less agreed to the codes of corpo-
the numerous accounting, auditing dictment. Forensic accountant and rate governance, a good many loose
and management accounting stand- forensic auditor may together repre- ends still remain unattended. The
ards which the counsel may not be sent several areas of expertise to the accounting systems followed in the
prepared to accommodate in the satisfaction of both the counsels on far eastern countries, for example,
brief that he seeks to prepare. Ump- either side and the learned judge. In have been highly complicated and
teen laws, a whole world of court the specific context of a dispute with cumbersome, coming in the way of
judgements, conflicts in national and respect to corporate affairs, evidence putting accounting and auditing
international approaches to these is- and expert comments of forensic practices on an even keel. And in all
sues may indeed remain beyond the accountants and forensic auditors, this, the accounting and auditing
grasp of the forensic accountant. As along with other experts, have been practices are not the only culprits;
the definition of audit underlines, fo- found acceptable in many a case. even the structures of corporate or-
rensic audit lays the stress on regular Forensic accountant and forensic ganization, methods of accounts
and systematic review and appraisal auditor act as complement to each keeping and auditing are different in
of the factors and forces contributing other, teaming up for better results, these countries. In dispute resolu-
to the preparation of the papers, the both with respect to the finding of tion, within or outside courts, re-
brief, for assisting counsel in present- the truths and in dispute/ conflict construction of the formats of ac-
ing his arguments. Many a time, the resolution though not necessarily count, treatment of individual
counsels of either side are accompa- only in courts or in arbitration pro- transactions, conformance to stand-
nied by a team of experts on specific ceedings. ards and other related issues would
areas of inquiry and when the judge all call for probing the depths of
asks questions, expert comments may Varying international conventions transactional typicality, to bring all
be offered according as admitted in Corporate accounting practices and the details on a comparable format
court proceedings. Specific issues conventions have been at variance and then to offer opinions thereon.
found relevant for consideration of with one another in various coun- In the emerging atmosphere of large

COVER
STORY
participation of international com- been a hot topic of discussion in However, the complex money laun-
panies with activities all around the many countries and laws in many dering schemes must be closely
world, the responsibilities of forensic countries are very strict in this re- studied so that money derived from
accountants and forensic auditors gard. It does throw a challenge to the the unsavoury practices do not enter
will not only have gone up in vol- forensic accountants and forensic into the proceeds of all these trans-
ume, but also in complexities, await- auditors not only to find out the actions.The tasks and responsibilities
ing solution. Not only are the foren- amounts involved, but also to ascer- of forensic experts dealing with such
sic accountant and forensic auditor tain whether in the course of the cases are a great deal more compli-
burdened with requirements of un- inter-country transactions such cated than they look. In the ultimate
derstanding the fraudulent transac- amounts of money can indeed be analysis, forensic accounting and fo-
tion, their efforts are further compli- treated as laundered, taking into rensic auditing are concerned with
cated by having to determine if the view the period, circulation and dis- finding the truth for helping to pun-
activity in question is truly fraudu- closure of such amounts in the ac- ish the guilty and protect the inno-
lent, based on local and accounting counts. Infringement of law in one cent. Companies, being incorporeal
conventions within the particular country may not be treated as such but real,s functional entities, have
country. Indeed, a countrys report- in another. The legal dictum, igno- the privilege of Caesars wife, causal-
ing requirements may well accept an rantia juris non-excusant, would not ity being integral to the corporeal
overt use of manipulation of earn- apply in all such cases, unless it be- operators.
ings as an aggressive accounting comes overt, or it is proved that the
method. Money laundering has actions were prima facie mala fide. chattopadhyay.p@lycos.com

A MULTIDIMENSIONAL
APPROACH TO INVESTIGATING
FRAUDS AND SCAMS: A
STUDY IN THE GLOBAL AND
INDIAN CONTEXT
Though forensic accounting is at a
nascent stage in India, it is currently in
great demand with the public need for
honesty, fairness and transparency in
reporting increasing exponentially
CA Anandaraj Saha
Asst. Professor, Haringhata
Mahavidyalay, Nadia
E CONOMIC and account-

ing scandals and scams have
become a global concern
in recent times. Umpteen number
of economic scams and irregulari-
ties have churned out national and
global markets many times since the
Industrial Revolution. During the
last few decades, there have been nu-
merous financial frauds and scandals,
which acted as milestones with lot of
historical significance. Financial scam
has become a real threat against the
development agenda for developing
and emerging nations. It is so endem-
ic that fraud and corruption is grad-
ually becoming a normal way of life.
Financial irregularity is so common
that our hands cannot be washed
off or kept clean, as sometimes the
impetus for its growth is provided

COVER
STORY
in our own interest or in many cas- crease in economic activities and pe- contributing something useless
es we become the real victims of it. riphery of markets, there has been si- to something in order to gain ad-
Economic irregularity is so pervasive multaneous increase in the activities vantage (Institute of Turkish His-
that it touches the life of almost every like fraud, scam, creative accounting, tory,1998). According to Arzova
individual and is scattered from grass financial irregularity etc. In order to (2003) fraud is to create a mis-
root level to the top most position of combat with all these a new budding judgement or maintain an existing
the society-starting from the public field of accounting has been bloom- misjudgement to induce some-
sector to the private sector; from the ing. It is known as forensic account- body to make a contract. How-
presidential villa of the nation, down ing (FA). It is also termed as forensic ever, one should not mix fraud
the political office-holding ladder, to auditing. The growth of regulatory with fault, which means wrong,
the ward councillors; from manag- compliances, the increasing number mistake, error committed invol-
ing directors of a company, through of fraud and threats of many mal ac- untarily and unconsciously. Fault
middle management cadre to as low tivities leading to scams have beget a stems from the deficiencies orig-
as messengers. Individual perpetrates related development in the forensic inated from person or environ-
fraud and corrupt practice according accounting and forensic technology ment. Therefore intention is the
to the capacity of their office (Sadiq). to unveil all these non compliance most important element which
There is no doubt that the main and fraudulent practices etc. Forensic distinguishes fraud from fault.
reason of all financial and accounting accounting/auditing is an umbrel- Forensic and Forensic Ac-
irregularities and scams is the greed la term used to denote the field of counting: 'Forensic' means' suit-
to gain access to huge amount of knowledge which is composed of ac- able for use in a court of law' and
funds illegitimately. In more simple counting, auditing and investigative it is to that standard and potential
word, it is the general tendency of skills. In short, a forensic accountant outcome that forensic accountants
people to maximise their financial/ is a bloodhound of accounting, not a generally have to work (Crumbley
monetary resources (without taking watch dog. These bloodhounds sniff et al., 2005). Forensic accounting
into consideration whether they re- out fraud and criminal transactions in (FA) is an umbrella term which
ally need such plethora of monetary banks, corporate entities or from any consists of accounting, auditing
resources), in whatever way that re- other organisations financial records. and investigative skills. It is a type
main open to them, legal or illegal. External auditors find out deliberate of accounting suitable for legal
The financial resources are often rep- misstatements only, but forensic ac- review and blended with services
licated by money. Although Govern- countants find out the misstatements like providing the highest level of
ment of a country is the real owner deliberately (Singh, 2012). assurance gathered through legal
of the currency, psychologically it is documentation of latest scien-
thought as money always obeys the Anatomy of the terms Fraud, tific fashion, core knowledge of
order of its master in whose hands it Forensic and Forensic Accounting GAAPs, standards and codes etc.
remains.This psychological thinking The idea of forensic accounting has According to Websters Dictionary,
has hypnotised most of the people, developed in order to probe into the FA means, Belonging to, used in
the result of which is that they are existence of any fraud or irregularity or suitable to court, of judicature
running after making money. It is a in financial transactions or business or to public discussions, debate
wrong notion that poor runs after deals or in any expenditure involving and ultimately dispute resolutions,
money. In the rat race of making public money spent through devel- it is also defined as an accounting
money through the illegitimate ways opment schemes/ projects of nation- analysis that is suitable to the court
of various economic scams, creative al or state governments. Therefore which will form the basis for dis-
accounting, financial irregularities the idea of fraud or intentional irreg- cussion, debate and ultimately dis-
etc., the billionaires of many coun- ularity is very essential in the study of pute resolution. Crumbley (2006)
tries have won the match; the poor forensic accounting. stated that forensic accounting is
people of many countries have al- Fraud: The word fraud means an accounting that is suitable for
ways been only the real victims and a deceptive trick, scam, game ar- legal review offering the highest
sufferers. tifice, cabal which is committed level of assurance and including
In this modern era, with the in- to cheat, mislead someone and the now generally accepted con-

FIGURE 1- FORENSIC ACCOUNTING AND AUDITING SERVICES: ANATOMICAL SKETCH
Forensic Accounting and Auditing Framework
Accounting Auditing and Assurance Investigation Science
Looking beyond Numbers while Risk Assessment and Analytical Fixation of Direction of Investigation
examining Financial Reporting and Procedures. on Realistic Basis.
Business Information Systems. Designing and Performing Extended Gathering Evidences and clues
Compliance of GAAPs and IFRS/ Audit Procedures through Scientific and Latest
Regional Standards. Compliance of Standards of Auditing, Investigation Techniques.
Reframing of Accounts Based on where applicable. Analysis of Psychological Behaviour
Legality and GAAPs. Introspective and Skeptical Mindset of Human.
for Reviewing Transactions and Deals. Evidence Documentation for Legal
Proceedings.
Litigation Consultancy- Jointly working with Lawyers and Clients engaged in litigation to provide expert advice
regarding evidence and strategic proceedings.
Computer Forensic- Providing assistance in Electronic Data Recovery and Retrieval.
he Expert Witness- Providing Evidence and Preparation of Formal Reports for filing in the Court of Law.
notation of having been arrived at together cause fire. When the three fy it by means of pleas. But in addi-
in a scientific fashion Figure 1. come together, inevitably fire breaks tion to that another element which
out (Bozkurt 2003). Bozkurt (2003) required is capability. For instance, a
Factors responsible for frauds and has classified such factors in Table 1 person who does not have any ba-
malpractices: The Fraud Triangle on the next page. sic knowledge of accounting cannot
There is no doubt that frauds and The main task of forensic ac- commit any fraud by manipulating
malpractices provide the impetus for countant is to trace the weak points numbers even if there are ample in-
forensic accounting or investigative in the business following the fraud centives and opportunities. The rea-
auditing. But what are the factors for triangle. It has been said that fraud son is that it is beyond his level of
which people commit frauds or lead triangle consists of three core con- capability as to how to manipulate
to accounting or economic irregular- cepts which together create a sit- numbers by means of accounting
ities? If an attempt is made to analyse uation beneficial for committing entries or wrong valuation or classi-
the business or corporate frauds, one fraud and malpractices. The above fication of items.
can unveil three main components factors give birth to these core con- According to Idowu-Freaon
for committing such white-collar cepts: Incentive, Opportunity and (2005) following conditions make
crime. These factors are pressure, Rationalisation. Recent study has perpetration of corrupt practices
opportunity and justification for shown another factor which is ca- easy which, in turn, make smooth
committing fraud which all together pability. For example, people must way for committing any fraudulent
constitute fraud triangle. Compo- have the incentive and opportunity acts:
nents of the fraud triangle are similar to commit financial frauds and ir- Concentration of power in deci-
to the fuel, spark, and oxygen which regularities, as well as ability to justi- sion makers who are not directly

COVER
PRESIDENTS
STORY
COMMUNIQUE
Table 1
Self interest close cliques.
However the above factors are
Such pressures may be long-term and
short-term. These arise when people are in
found relevant in third world
need of cash. These can again be classified countries like Ghana, Nigeria etc.
as follows:
Pressures with financial content
Itching palm and greediness; An epitome of consequences of
Desire to live well; frauds and scams: Global and
High amounts of personal debts and
health expenditures;
national scenario
Unexpected financial needs. Accounting/economic frauds and
scams are not new topic. They took
1. Pressure Factors
Such pressures are accepted as the worst

kind of factors motivating frauds. The place in all eras and all countries
main reasons for such pressures are some with varying level of intensity and
Pressures stemming from bad habits attributes related with human qualities. occurrence. Due to the blessings of
Such attributes are: different media (print or audio visual
Gambling, drug or alcohol addict;
or social) nowadays reports on scams
Night life habit.
and fiascos spread like forest fire.
Such pressures stem from the following: Fraud is a worldwide phenomenon
Being dissatisfied with the job;
The idea of an unfair attitude; that affects negatively all continents
Pressures related with job Not getting promotion when and sectors of the economy and
expected; most entities may face it regardless of
Lower wages structures; their size, nature, industry or country
Not admired by Supervisors. they belong. Worldwide various re-
These factors directly involve top management and owners of the business in ports have shown that scandals and
particular. The control structure of a business and fraud has inverse correlation. That frauds not only bring about mon-
2. Opportunity Factors
is better the control structure; lower the scope of committing frauds and vice versa.
The following factors are responsible for providing opportunity to commit frauds:
etary losses, but are also responsible
Weak moral policies; for contagious negative impacts on
Undisclosed contracts made with third parties and partners; stock markets, growth and GDP etc.
Incapability to assess the quality of job performed by the employees; throughout the world.
Absence of well disciplined environment in which fraudsters will be punished;
Ignorance, indifference and inabilities of top management;
Lack of healthy audit work.
Instances of reported frauds
by high-profile leaders
It is the defense mechanism of fraudsters in order to justify his/ her action. The
examples include:
Although fraud and corrupt prac-
I had borrowed the money, I would pay back; tices are globally endemic, howev-
3. Efforts to Justify
This is in return for my efforts for the business; er, the rate at which public office
Fraud Factors
Nobody has suffered as a result of this; holder in developing economies

I have taken the money for a good purpose; perpetrate financial malpractice is
I did not know that this was a crime;
Business had deserved this;
dangerously alarming. Leaders of
Since business evades tax, I have taken something which was already mine. third world nations, especially, em-
In order to prevent all these factors, business should establish moral code and bezzles public fund not minding
provide employee training. whatever consequences their activ-
ities may have on the citizens of the
country and their image in the in-
accountable to the people often Apathetic, uninterested or gullible ternational community, when their
seen in non-democratic regimes. populace that fail to give adequate nefarious act become known to the
Lack of Government transparency attention to political processes. world (Adefila, kasum and Olaniyi,
in decision making. Weak legal profession. 2006). A brief disclosure of loss suf-
Costly political campaigns. Absence of adequate control to fered due to frauds and scandals by
Large amount of public capital in prevent bribery. high-profile leaders are shown on
a project. Poor paid government officials. the right.

Magnitude of losses suffered
Estimates of
by frauds and malpractices: A Head of Designation Period funds allegedly
survey of various reports Government embezzled
Krolls Global Fraud Report President of Zaire (Congo
(2014): Recently in July and August Mobutu Sese Seko 1965-97 US $ 5 Billion.
Dr)
2013, a worldwide survey on fraud Mohammed Suharto President of Indonesia 1967-98 US $ 15-35 Billion.
and its effect on business has been
Jean-Claude Duvalier President of Haiti 1971-86 US $ 300-800 Million.
commissioned by Kroll and conduct-
ed by the Economist Intelligence Ferdinand Marcos President of Philippines 1792-86 US $ 5-10 Billion
Unit. In this survey more than 901 Siobodan Milosevic
President of Serbia
1989-2000 US $ 1 Billion.
senior executives worldwide from a Yugoslavia
broad range of industries and func- Sanni Abacha President of Nigeria - US $ 2-5 Billion.
tions were polled. 24% were based Alberto Fujimnori President of Peru 1990-2000 US $ 600 Million.
in North America, 25% in Europe,
Pavio Lazarenko Prime Minister of Ukraine 1996-97 US $ 114-200 Million.
23% in Asia Pacific, 14% from Latin
America, and 14% in the Middle East Armoldo Aleman President of Nicaragua 1997-2002 US $ 100 Million.
and Africa. The survey covered more Joseph Estrada President of Philippines 1998-2001 US $ 78-80 Million.
than 10 industries. The details of Source: Transparency International (2004)
findings are enumerated in Table 2.
KPMG Survey (2009): It was
a survey of 204 executives of US Table 2: Percentage of Companies affected by Listed Frauds (Figures are in
percentage)
companies with annual revenues
of $ 250 Million or more. It re- Types of Frauds 2013 2012 2011
vealed that 65% respondents con- Theft of physical assets 28 24 25
sidered frauds to be a significant Information theft 22 21 23
risk for their organisations. Management conflict of interest 20 14 21
ACFE Report (2010): The As-
Vendor, supplier or procurement fraud 19 12 20
sociation of Certified Fraud Ex-
aminers (ACFE) Report to the Internal financial fraud 16 12 19
Nations on Occupational Fraud Corruption and bribery 14 11 19
and Abuse found that the cost of Regulatory or compliance breach 16 11 11
fraud to US organisations is ex- IP theft 11 8 10
tensive i.e. 5% of annual revenues.
Market collusion 8 3 9
When such cost is applied to gross
world product of 2011, this figure Misappropriation of company funds 8 - -
translates to a potential projected Money laundering 3 1 4
annual fraud loss of more than Source: Kroll Global Fraud Report, Key Facts and Figures, Annual Edition: 2012/2013 and
US $ 3.5 trillion. The median loss 2013/2014
caused by the occupational fraud
cases was US $ 140,000. creased 3 times from median of respectively.
COSO Fraud Report (2010): US $ 4.1 Million in 1999 to the The Ernst and Youngs In-
The Committee of Sponsoring level of US $ 12.0 million. dia Fraud Indicator Report
Organisations (COSO) of Tread- National Fraud Authority (2012): The report stated that
way Commission analysed 347 (UK), Annual Fraud Indicator during 2011-12, total losses suf-
frauds investigated by the US Se- Report (2012): The scale of fraud fered in India was INR 66 billion.
curities and Exchange Commis- losses against all victims in UK is Data compiled by the Reserve
sion (SEC) from 1998 to 2007. It 73 billion p.a. The relevant fig- Bank of India (RBI) disclosed that
found that median dollar amount ures were 13, 30, 38 bil- money lost by banks duet to frauds
of each instance of fraud had in- lions p.a. in 2006, 2010 and 2011 and scams had doubled in the past

COVER
PRESIDENTS
STORY
COMMUNIQUE
4 years. Losses incurred by banks

Table 3: The Cost of Fraud in India, Asia and Pacific and Global
due to fraud increased by 88% in
2010-11 to exceed INR 37.9 bil- Items of Loss India Asia and Pacific Global
lion (more than INR 20.10 billion 1. Direct Loss (Average in US $) + 15,35,217 14,38,526 24,20,700
in 2009-10). Management Cost (Average in
2. 10,29,184 4,16,393 5,50,355
PwCs The 4th Biennial Global US $) +
Economic Crime Survey: India Damage to reputation or brand
3. 92 89 88
(2007) Report: According to this (% of cases) +
report the total cost of fraud in In- Decline in staff morale (% of
dia and world is in Table 3. 4. 88 92 88
cases) +
Damage to external business
Major financial and accounting 5. 84 87 84
relations (% of cases) +
scams, frauds and economic: Strained relations with regulator
global and national real threats 6. 75 83 80
(% of cases)
Global scenario Total cost of fraud (1+2) 25,64,401 18,54,919 29,71,055
There are plethora of reported scams,
Source: PwC: The 4th Biennial Global Economic Crime Survey: India (2007)
scandals and fiascos throughout the
world.They include companies from
developed countries to companies
from underdeveloped nations. In Companies Country Companies Country
many cases leaders of national gov- HIH Insurance, Harris Scarfe and
ernments were also convicted of be- Australia Adecco International Switzerland
One Tel
ing engaged in financial irregularities
or scams. Some of the companies Barings Bank
ComRoad, Phenomedia, MLP,
where frauds were being reported Germany Equitable Life, UK
Hugo Boss, Nici, Zapf Creation
Wiggins, Versailles
with their countries are briefly enu-
merated on the right. Gescartera, Bafisa,
Baan Company, Ahold NV, LCI
Indian scenario Netherlands Afinsa and Forum Spain
Computer, Landis
India, an emerging country, has also Filatelico
noticed umpteen numbers of scams
Dynamic Life, Ipirotiki Software Greece
and fiascos. Following are some birds
Asian Countries
eye view of such scams and malprac- Parmalat, Freedomland, Finmatica Italy
tices or accounting irregularitieson
next page. Global Crossing Bermuda
PT Bank Bali, Sinar
Indonesia
Mas Group
Forensic accounting engagement:
Bangkok Bank of
How it is conducted Nortel Networks Canada
Commerce
Thailand
Since each and every fraud and
financial irregularity is unique, Elan Ireland United Engineers Bhd Malaysia
accordingly the approaches to be
adopted to unveil each of them Samsung Electronics,
ABB, Skandia, Prosolvia Sweden Korea
Hyundai
will be specific to it. Association of
Chartered Certified Accountants Vivendi Universal France IHI, Sanyo Electric Japan
(ACCA) has provided guidelines
to perform such audit in general. Adelphia Communication, IBM, Zhengzhou Baiwen,
However such guidelines are ap- Enron, Xerox, Madoff Securities, USA Shandong Bohai, China
plicable in general. Forensic inves- Lehman Brothers Jinzhou Port, Kelon
tigator has to develop some specific Source: Bhasin (2013), Page 12.
unique procedures to detect the

odologies to be adopted. The inves-
Losses Losses tigation team must carefully take
Scams and Scams and
Year Suffered Year Suffered
Frauds Frauds into consideration the objectives to
(Rs.) (Rs.)
be achieved and plan their work ac-
Harshad Mehta
Securities Market 1991 5,000 Crore
Madhu Cora
2009 4,000 Crore cordingly. The objectives of such as-
Scam signments include:
Scam
Fodders Scam (Chara Commonwealth
Identifying the types and nature
1992 950 Crore 2010 2,342 Crore of the frauds or irregularities that
Ghotala) Games Scam
Adarsh Housing
have been operating.
C. R. Bhansali Scam 1995 1,200 Crore 2010 - The estimated time period of their
Society Scam
occurrence.
Ketan Parekh Sahara India
Securities Market 2001 1,250 Crore Pariwar Investor 2010 25,000 Crore How the fraud was concealed, the
Scam Fraud Scam techniques and methods adopted
Coal Block for their concealment.
The UTI Scam 2001 4,800 Crore Allocation/ 2012 1.856 Billion Identifying the fraudster(s) in-
Coalgate Scam volved.
Uttar Pradesh Food Karnataka Wakf Assessment of the financial losses
2003 35,000 Crore 2012 20,000 Crore
Grains Scams Board Land Scam and quantification of them.
Uttar Pradesh Gathering the evidences to sup-
Satyam Scam 2008 10,000 Crore 2012 10,000 Crore port the courts proceeding.
NHRM Scam
The 2 G Spectrum 1,75,000 Saradha Group Providing advice so that re-occur-
2008 2013 200-300 Billion rence of the fraud can be prevent-
Distribution Scam Crore Financial Scandal
Source: CapitalVia Global Research Ltd, Indian Stream Research Journal and others. ed.
Gathering relevant evidence
It involves obtaining relevant doc-
frauds and malpractices. Therefore of interest check should be carried uments, economic information,
instead of adopting prototype pro- out as soon as the relevant parties are tracing different assets/ persons/
cedures as are followed in case of established. Fees may also be negoti- unaccounted records, meeting with
financial audit assignment, forensic ated at this stage depending on spe- other experts, statutory and internal
investigator should adopt situation cific nature of accounting and audit- auditors of the client. The evidences
oriented procedures. The proce- ing work and the likely involvement gathered should be sufficient to ulti-
dures are discussed below: of the experts in team. mately identify and prove the fraud-
Meeting with the client and Performing initial investiga- ster(s) and the mechanism adopted
accepting the engagement tion for such frauds.
In order to understand important It is generally desired to perform an Analysis of evidences and
facts, players and issues etc., the inves- initial action plan prior to develop- other supporting information
tigator must meet the client. It is to ing a detailed plan. Such initial ac- The actual analysis to be performed
be considered initially that whether tion plan will help to formulate sub- will solely depend upon the nature
his firm has the necessary skills and sequent planning to be based upon of the assignment.This may include:
experience to accept the work. Such more complete and comprehensive Summarisation of a large number
audits are highly specialized and the understanding of the situation. of transactions.
work requires detailed knowledge of Planning the audit or forma- Performing robust procedures to
fraud investigation techniques and tion of robust action plan trace unidentified assets.
the legal framework. This is to be developed based on the Calculating the economic damag-
Performing conflict check meeting with the client and carrying es and if required, the loss of good-
Additional consideration is wheth- out the initial investigation scanner will.
er or not the investigation is being on the subjects to be investigated. Estimating the present value of the
requested by the audit client. In or- This action plan will set out the ob- financial losses or frauds involved
der to achieve objectivity, a conflict jectives to be achieved and the meth- in case such irregularities or frauds

COVER
PRESIDENTS
STORY
COMMUNIQUE
took place for a long period of

time. 1. TITLE OF THE REPORT
Performing the statistical regres- 2. EXECUTIVE SUMMARY
sion or sensitivity analysis of the 3. BACKGROUND OF ENGAGEMENT
frauds etc. 3.1. Origin
Using various computerized ap- 3.2. Objectives of Engagement
plication softwares and graphs etc.
3.3. Proposed Outputs of the Assignment
to explain and analyse the frauds.
Preparation of Report: 3.4. Implementation Approaches
The report generally includes vari- 4. ANALYSIS OF THE RISKS INVOLVED
ous sections describing the nature 4.1. Internal Environment Risks
of the assignment, scope, approaches 4.2. External Environment Risks
utilized, findings, opinions and limi- 4.3. Political and Legal Scenario
tations. Report is generally submit- 4.4. Risks from Customers, Suppliers and Competitors etc.
ted to the appointing authority.
4.5. Business Process and Human Resources Management
A flow chart of forensic account-
4.6. Market, Operational and Technological Risks
ing engagement is shown in Ap-
pendix I. 4.7. Others
5. EVIDENCE OF RISK EVENTS
Contents of Forensic Engagement 6. ANALYSIS and FINDINGS
Report 7. AUDIT RECOMMENDATIONS
The contents of the report may vary 7.1. Logical Framework Approach
depending on the situation, the na- 7.2. Preconditions and Risks
ture and extent of the frauds and ir-
8. IMPLEMENTATION OF RECOMMENDATIONS
regularities involved.The generalised
form of such forensic accounting in- 8.1. Budget Considerations
vestigation report is shown on right. 8.2. Stakeholders to be Engaged
9. LIST OF ANNEXURES
Applications of forensic
accounting around the world Source: ACCA, UK Technical Paper, September 2009 (Adapted), Page 58.
Presently forensic accounting pro-
fession has gained increasing impor- an environment that also includes or governments tasks forces also in-
tance. Applications and relevance of industry, professionals, regulators clude some areas in common with
such accounting in some developed and government. They may work forensic accountants. In addition, in
countries are briefly stated below: in conjunction with these entities Australia there is a graduate degree
or considering the rules, regulations programme in forensic accounting.
Canada enforced by them. Some common- The master program emphasizes a
Canada considers forensic account- ly encountered regulatory bodies in forensic rather than a control-based
ing engagements as profession. Ac- Australia are Australian Securities and or risk management approach to
cording to the Certified General Investment Commission (ASIC), analysis of fraud.
Accountants Association of Canada, Australian Tax Office (ATO), Fi-
such profession is relatively new. It nancial Action Task Force (FATF). United States of America
intends to join hands with Canadi- Professional organisations interact- Forensic audit found its new
an Institute of Chartered Accounts ing with forensic accountants in- place when a landmark legisla-
(CICA) to formulate standards on clude Certified Public Accountants tion known as the Sarbanes-Ox-
such audit. (CPA) and Institute of Chartered ley Act (SOX Law) was enacted in
Accountants of Australia (ICAA). the US on 30th July, 2002. It was
Australia The works of Australian Federal Po- passed in the wake of accounting
Forensic accountants work within lice (AFP), state and specialist police scandals such as Enron, WorldCom

A FORENSIC ACCOUNTANT IS A BLOODHOUND
OF ACCOUNTING, NOT A WATCHDOG. THESE
BLOODHOUNDS SNIFF OUT FRAUD AND CRIMINAL
TRANSACTIONS IN BANKS, CORPORATE ENTITIES...
and Xerox which seriously under- Relevance and legislative support tral Bureau of Investigations (CBI)
mined investors confidence. In the of forensic accounting in India Economic offence Wing, Reserve
USA, forensic accountants have Although forensic accounting is not Bank of India (RBI), Securities and
been employed by the Federal Bu- directly mentioned in any Indian Exchange Board of India (SEBI), Se-
reau of Investigation (FBI), Cen- statute, but various provisions of dif- rious Fraud and Investigating Office
tral Intelligence Agency (CIA), ferent statutes resemble the tasks of (SFIO) etc. authorities in collecting
Internal Revenue Service (IRS), forensic investigator.They are: evidences and other relevant mate-
Federal Trade Commission (FTC), The Companies (Auditors rials. For applications of various sec-
Homeland Security, Bureau of Al- Report) Order 2003 (amended tions like Sec. 157 of The Code of
cohol, Tobacco and Firearms, Gov- in 2004) Criminal Procedure, 1973 (Cr. PC);
ernmental Accountability Office Comment and Observation on Sections 17, 18 of the Prevention
(GAO), and other government Fixed Assets: CARO 2003 requires of Corruption Act, 1988; Sec. 6 of
agencies focussing on what is re- an auditor to report whether a Bankers Books Evidence Act, 1891;
ferred to as white-collar crime, no- substantial part of fixed assets have Sec. 78 of Information Technology
tably fraud. Outside of government been disposed off during the year Act, 2000 etc., the honourable court
agencies, big employers of forensic and whether such incident has and police may require the services
accountants include banks, insur- affected the status of going con- and skills of forensic accountants for
ance companies, divorce attorneys cern. In this context the auditor inspection of any books and docu-
etc. They often testify in civil and has to refer to AS 24- Discontin- ments related to accounts. For ex-
criminal court hearings serving as uing Operations, SA 570- Going ample, in recently reported Saradha
expert witnesses. The expert wit- concern issued by ICAI. Scam (2013) of West Bengal, SEBI
ness presents evidence and wheth- Report on Fraud: It requires that appointed one Bangalore based fo-
er fraud is committed or not is auditor should report whether any rensic auditor, Sarat Associates to in-
decided by the court. Moreover fraud has been noticed by him. If it vestigate into the matters.
numerous organisations like Amer- is noticed the auditor should men- Expert Opinion: The services
ican College of Forensic Examin- tion it in his report. In this context of forensic accountants may be used
ers, Association of Certified Fraud he may refer to SA 330- Audi- to examine the financial statements
Specialists, National Litigation tors Reponses to Assessed Risks, and to form opinion. After investi-
Support Services Association, Na- SA 240- Auditors Responsibility gation, forensic investigator may give
tional Association of Certified Val- Relating to Fraud in an Audit of his expert opinion whether any fraud
uation Analysts, American Institute Financial Statements was committed or anomaly noticed
of Certified Public Accountants Investigation and Inspection: in the reported accounts. Collection
(AICPA), The Institute of Business Forensic accountants and investiga- of evidences for court proceedings
Appraisers etc. support the tasks of tors may help police, Criminal In- are the most important tasks done
forensic accountants. vestigation Department (CID), Cen- by the forensic accountants. These

COVER
PRESIDENTS
STORY
COMMUNIQUE
require as per Sections 45, 118 of In- accounting and Fraud Detection college and universities are provid-
dian Evidence Act, 1872; Sec. 293 of using IT and CAATs. At present ing courses on Forensic Science.
Cr. PC, 1973. very few academic institutions are In the background of increasing
offering courses (full time or part levels of frauds and economic ir-
Conclusion time) on forensic accounting. Indi- regularities, it is expected that the
Forensic accountants are currently an universities are lagging behind prospects of forensic accountants
in great demand with the public in this area as compared to other are bound to increase substantially
need for honesty, fairness and trans- foreign universities. Some leading in the near future.
parency in reporting increasing organisation such as Indiaforen-
exponentially. FA has come to the sic (Pune, Maharastra) has started References
limelight only recently due to rapid certificate course in Bank Foren- 1. Bhasin, Madan Lal (2013), An
increase in frauds and white-collar sic Accounting (CBFA), Certified empirical Investigation of the Rele-
crimes.The idea of FA is at a nascent Forensic Accounting profession- vant Skills of Forensic Accountants
stage in India till now. The pioneer al (CFAP). Institute of Chartered Experience of a Developing Econo-
Indian accounting regulator, the Financial Analyst of India (ICFAI) my, European Journal of Accounting
Institute of Chartered Accountants Univeristy, Tripura also started to Auditing and Finance Research,Vol.
of India (ICAI) has taken the chal- offer a Postgraduate Diploma in 1 (2), Pp 11-52.
lenges to start a course on forensic Forensic Accounting. Although this 2. Bhasin, Madan Lal (2013),
accounting for only its members. It is at nascent stage in most of the Corporate Governance and Forensic
is Certificate Course on Forensic Indian universities, however many Accountants Role: Global Regula-
tory Action Scenario, International
Journal of Accounting Research,Vol.
1 (1), Pp 1-19.
3. Krolls Global Fraud Report,
2013/2014 (available at http://
www.economistinsights.com/ accessed
on 20.7.14).
4. Lohana, Poonam, M. (2013), Fo-
rensic Accounting- At Nascent Stage
in India,Voice of Research,Vol. 2
THERE IS NO DOUBT THAT THE MAIN REASON (1), Pp 63-65.
OF ALL FINANCIAL AND ACCOUNTING 5. Mehta, G, S. and Mathur,T.
(2007), Preventing Financial Fraud
IRREGULARITIES AND SCAMS IS THE GREED Through Forensic Accounting,The
Chartered Accountant, April 2007,
TO GAIN ACCESS TO HUGE AMOUNTS OF Pp 1575-1580.
6. Prakash, Namrata (2013), Forensic
FUNDS ILLEGITIMATELY. SIMPLY, IT IS THE Accounting: A Budding Field in
GENERAL TENDENCY OF PEOPLE TO MAXIMISE India, Indian Journal of Accounting,
Vol. XLV (1), December, Pp 102-
THEIR FINANCIAL/ MONETARY RESOURCES 111.
7. Yadav, Sudhir andYadav, Sushama
(WITHOUT TAKING INTO CONSIDERATION (2013), Forensic Accounting: A New
Dynamic Approach to Investigate
WHETHER THEY REALLY NEED SUCH Fraud Cases, Excel International
PLETHORA OF MONETARY RESOURCES) Journal of Multidisciplinary Manage-
ment Studies,Vol. 3 (7), Pp. 1-9.
anandarajsaha@yahoo.com

APPENDIX 1- FLOW CHART OF FORENSIC/ INVESTIGATIVE ACCOUNTING
Accounting, Auditing
Planning Reporting
& Investigation
No
Initial Meeting with Client Sufficient Expand Boundaries
Information? & Scope
Consider Terms of the Yes

Engagements Initial Assessment
& Review of Verify Information
Information with Objectives
Agree subject Preparation for
matters and Scope of Legal Proceeding &
investigation Submission in Court
Collection of Obtain (if needed)
Information Evidences for
(Quantitative & Legal Proceeding
Performing Conflict of
Qualitative)
Interest Check
Prepare Purpose, Corrective, Preventive

Objectives, Key Issues Assessment of Risks Actions &
& Activities Statement and Internal Control Sufficient
Follow-up Review
& Appropriate
Evidences ?
Identify Investigation Review of documents

Yes No
Boundaries and Risks and Records
Expand Final Forensic

Interviewing key Investigation or
Develop Action Engagement Report
informants (Including Change Methodology
Plan & Programme experts)
Site/ Facility
Selection of Approaches Inspection or visit
Evaluation Discussion with
of Analysis & Lawyers, Experts,
Recognise Issues Findings Panel Members
Yes
Established/ Communicate
Standard? Objectives and
Approaches to Key Prepare Draft
Team Personnel Documentation of Report
Evidence
No
Yes
Unique Specific ?

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PRESIDENTS
STORY
COMMUNIQUE
WHITE COLLAR CRIME AND ITS

PUNISHMENT POLICY
Though some white collar criminals have been
awarded exemplary punishments in the U.S., it is
observed that nationally and internationally, white
collar criminals escape with little punitive action
I N this paper financial

crimes are mainly em-
phasized in white collar
crimes. Financial crimes in-
clude accounting crime as
white collar criminals arrest-
ed in 2010 which increases up
to 148 in 2011. In 2012, Eco-
nomic Offence Wing (EOW)
of Delhi Police arrested more
industry is losing around Rs.
1800 crores annually because
of piracy. Non-banking fi-
nancial companies are flour-
ishing with high rate of inter-
well as the economic crimes than 163 criminals in 1358 est and commissions playing
too. Though the paper start- cases and attached property with deposits of Rs. 45,000
ed by some Indian statistics estimated to 300 to 500 crores crore which is commercially
CMA Dr. Radhanath
its thoughts are well applica- of rupees. Financial Action unviable in the long run. The
Pyne
Associate Professor and ble to international scenar- Task Force Stated 1704 cases table below shows the figures
HOD io too. After the conceptual of money laundering are cur- available in Wikipedia about
S.A.Jaipuria College, terms used, narrated in Part I, rently under probe in India financial fraud in India which
Kolkata this paper attempts to analyse where the conviction rate is shows that financial crime has
the problem of punishing the shocking three percent. Only exploded from 2009.
elite criminals which is cate- five people convicted over It will not be irrelevant
gorically discussed with the money laundering cases in to say that Wikipedia is also
philosophy and problem of the last seven years in India. showing that from 1967 to
punishment in Part II. There In India the music and film 2012 among 60 famous ac-
is no conclusive statement
about the steps to improve Year No. of Scams Scam value( in Rs.)
the condition but the views 1948-1990 1 scam per year 80 lakhs to 2000 crore
of the author are depicted in
2000 crores to 30,000
the form of final observation 1991-2007 3 scams per year
crore
at the end of the paper.
2008 7 scams 95 crore to 91,000 crore
The main difficulty in re-
porting about white collar 18.7 crore to 3,400
2009 9 scams
crore
crime in India is, it is not re-
ported in any official Crime 15 crore to 1,76,000
2010 14 scams
crore
Report of India. Accumulat-
ing data from different sourc- 2.34 crore to 2,00,000
2011 23 scams
crore
es shows within a year 2010-
11 white collar crime grows 1200 crore to 10,70,000
2012 23 scams
by 108 percent where 71 crore

counting scams 41 has emerged data of imprisonment or the convic- social status of the offender, rather
from USA alone. But the exempla- tion. But these data do not include he emphasized on the violation of
ry punishment they awarded to the the professional people, industrial the legal rules constructed to govern
elite offenders is also to be noted leaders and corporations who ever the business affairs and occupational
like Mr Raj Rajarathnam of Gal- faced imprisonment or convicted practices where such violations are
lon Hedge Fund (serving 11 years otherwise. Sutherland defined white continued. Clinard and Quinney
imprisonment and $92.8 million as collar crime in a presidential address (1967) along with Bequai (1977)
fine), Mr Allen Stanford, a financi- to the American Sociological Soci- raised the point that the criminal
er and cricket magnet (serving life ety in 1939 as a crime committed activity should be attached with a
imprisonment) and Mr Rajat Gup- by a person of respectability and legal business or occupation which
ta, the insider trader (serving two high social status in the course of his includes the elements of fraud.
years imprisonment and a fine of occupation (Sutherland, 1959). He Apart from the deviation in defi-
$ 5 million) are a few of them. But concluded that such crime existed nition criminologists criticized
still, comparing the enormity and because of differential association, a heavily by saying that the crime not
sentencing of white collar crime, a process whereby behavior is learned covered by the criminal laws cannot
huge disparity is observed nationally in association with those defining be called as a crime (Tappan, 1977)
and internationally too. the behavior favourably and in isola- and they refuted to discuss about its
definition which according to them
sterile definitional disputes (Albert,
1977). The sociological understand-
ing was not same as the definition of
Sutherlands. In prosecution, criminal
WHITE COLLAR CRIME IS AN INCREASING intent or mens rea is necessary which
MALAISE THROUGHOUT THE GLOBE. ITS was not accepted by Prof. Sutherland
who suggests the exception to the
ENORMOUS SIZE SUGGESTS THAT THERE IS criminal intent and presumption of
A STANDING RELUCTANCE OF HANDLING innocence is increasing in numbers.
His process of distinction not on the
THE ISSUES SERIOUSLY basis of intent or act but according
to the status of the accused was high-
ly criticized. In turn, Sutherland also
PART I tion from those defining it unfavour- deprived the corporate individuals
Concepts of white collar crime ably. He argued that corporate crime of presumption of innocence and al-
In thirties, American sociologists would become self-propagating as ways gets the preferential treatments.
viewed that criminal behavior was corporate officers define their own Even some sociologists (Clinard &
the result of cultural conflicts, the limits of acceptable behavior. Yeager, 1980) finding Sutherlands
weakening of forces of the privileged Sutherland died in 1950. But the very loose definition too restrictive
upon the less privileged members of criticism against the concept of white and have dropped the class of the of-
a society. Consequential social dis- collar crime continues in a rapid and fender as a relevant element.
orientation and the forces between robust way. Criminologists and oth- Sociologists, while studying the
moral and ethical standard led to de- er sector of sociologists did not spare criminology, tend to assume deter-
viant or antisocial behavior particu- him as he developed the idea basi- minants of illicit behavior. Strain
larly those of lower intelligence or cally from the applied field of study. Theory of Donald Gressey (1953)
those who are mentally or emotion- Geiss (1962) criticized white collar with other organizational theories
ally unstable (Reid, 1982). crime by saying that Southerland view that social problems coming
Edwin. H. Sutherland felt the differentiates between corporations from such illicit behavior result from
weakness of contemporary sociolog- and the actions of corporation ex- the failure of institutions, families
ical theories of crime. He read that ecutive and management personnel. and other structures to provide for
the theories are developed by the Gibbon (1977) did not attach the the functional and affective needs of

COVER
PRESIDENTS
STORY
COMMUNIQUE
individuals. These ineffective needs TABLE 1

create a sense of alienation or ano- Basis Street Crime or Blue Collar Crime White Collar Crime
mie, which grows through a variety Identification More obvious Less obvious
of actions harmful to the individual Less detected and if detected
or others. The gap between social- Force More physical force is applied
at all very less are reported
ly approved means and ends creates Violence More Less
antagonism which results to anxie- To larger section of people
Effect On individual or lesser section of people
ty and thus creates strain in reaching directly or indirectly
to societal goals from present status. Class of offenders
Mainly by the male member of the lower Mainly by the upper class of
Konty (2005) has again argued that class the society
individuals are aligned with the val- Age of offenders In lower age In matured age
ues regarding self-interest than with Loss measurement Easily possible Very difficult to measure
social. Self interest becomes crimino- Media Coverage Very high Very low
genic only in the absence of social Prosecution Rigorous Less rigorous
interest to prevent the pursuit of self If by individual it is occupational
interested goals by any means nec- Benefits shared By individual only and if by the organization it is
corporate crime.
essary. Colvin et al (2002) claim,
excessive strain may be a causal fac-
tor that leads a person to transfer his frauds which are cash and non-cash lar crime is roughly measured (Shank
group identification in a deviant cul- assets misappropriation and prepa- and Klause, 1984). As Levi (1987)
ture, thus prompting criminality. ration of financial and non-finan- pointed out major fraud against busi-
cial fraudulent statement. External nesses may not be reported because
Street crime vs. white frauds are related with customer, they are embarrassing to the business.
collar crime vendor, investment, bankruptcy etc. Moreover, there is no uniformity in
White collar crime has a specific Employee frauds may be of external measurement after the crime is iden-
difference with street crime or blue or internal in nature. Some statistics tified or reported. For example, a rela-
collar crime. Table 1 has been pre- from a survey will help us to predict tively small bribe to an inspector may
pared to differentiate the same in an the enormity of corruptions, com- collapse a building. So what will be
easy manner: mon in both internal and external attributed as the cost of the crime?
Additionally, Heath (2008) has frauds. Survey on fraud in India, Stock stolen may be valued either in
observed that white collar crime in- 2010 says 37% of it is paid as bribery the wholesale price or in retail value
volves some form of social deviance to get routine administrative approv- or in a different value like replacement
and represents a breakdown in social als from government agencies, 31% one is not determined uniformly.
order. His version was that the white to win or retain business, 22% is to The cost of white collar crime
collar criminals tend to apply tech- influence people to delivery favour- may be direct, indirect or physical in
niques of neutralization used by of- able treatment and 10% to use un- nature. Direct costs are those which
fenders to deny their criminality. authorise resources.The World Bank are specifically identified from such
aggregates fraud globally to over 1 criminal activities. In case of ille-
Fraud, corruption and trillion USD per annum. Some sur- gal transfer of assets from one par-
white collar crime veys put the companies affected by ty to another increases the material
Though white collar crime denotes fraud is 85% and it is growing. Other well being of one party at the ex-
an all encompassing definition yet research estimates that organizations pense of another is typically signify
it has some differences with cor- lose as much as 7% of their annual the victims loss. Overall economic
porate fraud and corruption. Fraud revenues to fraud (CIMA). crime has been estimated as high as
normally connotes the interest out $ 1 trillion annually (Schlegel, 2000).
of an asset through deception and Cost of white collar crime Greider (2002) has estimated the loss
willful neglect, whereas corruptions The cost of crime is mainly dealt suffered by the ordinary workers and
the misuse of trusted authority. Ac- with economic cost of crime. That the employees runs up to $50 billion
counting frauds are basically internal economic cost, in case of white col- in case of Enron alone.

Besides direct economic cost of content in the white collar crime is crime. The relevant margin to rank a
crime there are certain indirect costs not properly established often the crime should be defined and accept-
of crime which are also difficult to question of incapacitation is diluted. ed. Second, a similar ranking should
measure accurately. They are higher Deterrence is another way to get the be developed in punishment tech-
taxes, increased costs of goods and punishment rationality. It is about the niques and last, those punishments
services and higher insurance rates relationship between sanctions and must also be ranked by severity.
(Shenk and Klaus, 1984). The gap human behavior. Punishment has a
between fines levied and the restitu- greater impact on misconduct if it is Problems in punishment
tion demanded in case of loan and severe, certain and swift in applica- Two issues are contentious in sen-
savings fraud is also to be accounted tion. Effectively, few months (fifteen tencing the white collar criminals.
for at the time measuring the indi- or sixteen) of incarceration damage One is the right way of calculating
rect cost of crime (Pizzo and Muolo, the reputation to that extent which the loss and the other is the domi-
1993). Residual economic costs like is recovered by changing the place nation of the class interest. There is
loss of investors confidence due to and nature of business. hardly any real guidance for calcu-
insider trading is not negligible in The objective of the rehabilitation lating loss by white collar crime. So
calculating the indirect cost of white is to restore a convicted offender to a far the guidelines (2010 Federal Sen-
collar crime. Physical cost of crime constructive place in society through tencing Guidelines of US) available
is related to personal injury or loss some combination of treatment, ed- the loss will be defined as the great-
of life. For example, adulterated food ucation and training. Restorative jus- er of actual loss or intended loss.
grains supplied, spurious medicine tice is the method applied to the of- The actual loss is the foreseeable
sold, wrong chemical treatment of fender where both the offender and harm and the intended is the harm
effluents may cause a holocaust. the community is integrated and in- which the offender intended to do.
Other social cost which created stitutionalized. The objective of such Class interest is protecting the
loss of trust and alienation a group justice is to restore both the individu- white collar criminals. As the self in-
from the mass is difficult to measure al parties and their communitys sense terest motivates a person psycholog-
though it is prevalent. of wholeness. Punishment is depriva- ically to adopt unethical means, the
tion of freedom imposed by the au- class interest creates an environment
PART II thority. Punishment is an objectively to dissolve the issue as a natural social
Punishment philosophy and judged loss or burden imposed on a loss. Class is a theoretical or formal
white collar crime convicted offender. But the severity relationship among individuals. Out
Punishment is usually justified on the of punishment must be proportional of similar class situation, individuals
principles of retribution, incapacita- to the gravity of the offense. Propor- come to act similarly. They develop
tion, deterrence, rehabilitation and/ tionate punishment is the output of a mutual dependence, a community
or restoration. Retribution is the four institutional inputs like law, po- and a shared interest. From this com-
punishment judged on the principles lice, courts and prisons.The quantum mon interest classes are formed and
of revenge and retribution. This is of criminal sentence is determined their interest engages them in a strug-
the oldest form of judgment where through social coordination. gle with the opposite class. The judi-
the idea eye for an eye or let the The proportionality principle ciary and the white collar criminals
punishment fit the crime was the works with two central aspects i) are of same class in most of the cases.
primary basis for criminal sentenc- the ordinal proportionality of a pun- Production relation and its loca-
ing. The principle of incapacitation ishment refers to its magnitude in tion in the social structure determine
decreases the physical capacity of a relation to other crimes and punish- the class interest. Common struggle
person to commit criminal or de- ments and ii) cardinal proportionality shows the common consciousness
viant act. The most common form maintained when the link between about their common fate. It is then,
of incapacitation is incarceration or the ordinal scales are matched and that individuals become part of a co-
imprisonment which is fructified in produces a reasonable punishment hesive class that consciously articu-
association with other form of pro- magnitude. It consists of three relat- lates their common interest. In case
grammes like deterrence and reha- ed steps. First, society needs a ranking of protecting the criminal elites the
bilitation. As the degree of criminal system to evaluate the severity of the role of legal personalities are very

COVER
PRESIDENTS
STORY
COMMUNIQUE
much conscious about their class. is still a coveted step towards white 2. Bequai, August (1977):Wanted:
Self conscious classes arise only if and collar crime. The interpreters and The White Collar Ring, Student
when there exists a convergence of the executors of legal machineries Lawyer, No.5, p-45
ideal and material interest that is mostly belong to the same class with 3. CIMA (2010): Corporate Fraud,
the combination of economic and the elite criminals. So the influence Topic Gateway Series, No.57
political demands with moral and of the community is unavoidable. 4. Clinard, M. B & Richard Quinney
ideological quests. More specifically Judging by the gravity of the prob- (1967): Criminal Behaviour
there is a status consciousness among lem, it is necessary to include such System: A typology, New York,
the elites be it among the criminals crimes with proper emphasis in the Winston, P-131
or non-criminals. Class groups are penal codes. An improper way of 5. Clinard, M.B and P.C.Yeager
not communities where status groups loss calculation and the protection (1980): Corporate Crime, Free
are. Status is defined as the likelihood of class interest defy the punishment Press, USA
that life chances are determined by philosophies when applied. Eco-po- 6. Colvin, M, F.Cullen and T.Ven
social honour or prestige. Intention litical issues like injecting huge liq- (2002): Coercion, Social Support
of accumulating wealth is the com- uid money and motivated handling and Crime: An emerging theoret-
mon wish of the criminals and the of it creates an environment con- ical consumer, Criminology, 40,
administrators belonging to the likely genial to white collar crime. In case p-19-42
class. Unfair means adopted justifies of financial crime in a large organi- 7. Geiss,G(1962): Sociological
the ends which is a common interest zation auditors role is criticized for Enquiry,Vol.xxxii, No.2, Spring ,
of the community. Wealth plays an emphasizing more on consulting ac- p-162
important role to differentiate from tivities than the auditing one. It helps 8. Gibbon, Don.C (1977): Society
one status to other. The members of the perpetrators to get the spurious Crime and Criminal Career: An
the community will make themselves data approved. Moreover, there is Introduction to Criminology, 3rd
organized to retain their hegemo- no social protection for the whis- edn., Englewood Cliff
ny over the whole society (Luck- tleblowers. Fear of loss of jobs and 9. Greider,W (2002): Is this Amer-
as, 1967). Finally class hegemony is the future acceptability of the whis- icas Top Corporate Crime Fighter,
established to reduce the necessary tleblowers in the industry prevents The Nation, Aug 5
prosecution and punishment and the white collar crime to come to 10. Gressey, D (1953): Other peoples
finds a suitable way to get out of the the surface. Without the proper un- money, New York, NY, Free Press
clutch from the penal provisions.The veiling of the issues the regulatory 11. Hart, H.L.A (1968): Punishment
insidious effect of white collar crime legal measures become inoperative and Responsibility: Essays in the
and the leeway throws signals to the and thus crimes continue to siphon Philosophy of Law, Oxford, Oxford
criminals and further offender that capital out of the organization keep- University Press
the impact of crime is not impor- ing the investors at bay. So, to con- 12. Heath, J (2008): Business ethics
tant and the economic benefit and trol the effect of white collar crimes, and Moral Motivation: A Crim-
protection of class interest increase a multifaceted approach is needed inological Perspective, Journal of
the recidivism which ultimately ig- from the economic (money sup- Business Ethics, 83, 545-614
nores the huge social loss caused by ply), legal (new provisions), political 13. Konty, M (2005): Microanomics:
it. There should be some unbailable (governments vigilance) and the The Cognitive Foundations of the
statute to avoid the class dominated social (class bias control) aspects of Relationship between Anomie and
prosecutorial creativity. a country. The ethical way of han- Deviance, Criminology 43, 107-32
dling the creativity may be the only 14. Levi, M (1987): Regulating
Final observations way to stop the germination of the Fraud White Collar Crime and
White collar crime is an increasing white collar crime at the basic level. the Criminal Process,Tavistock Pub-
malaise throughout the globe. Its lisher, USA
enormous size suggests that there is References 15. Luckas George (1967): History and
a standing reluctance of handling the 1. Aubert,V (1977): White Collar Class Consciousness,Trans. Rodney
issues seriously. Proportional pun- Crime and Social Structure in NY, Livingstone, Pub Merlin Press.
ishment with rapidity in sentencing Free Press 16. Pizzo, S and Paul Moulo (1993):

Profiting from the Bank and Sav- Maguire, Morgan and Reiner 5. www.slideshare.net/SayefAmin1/
ings and Loan Crisis: How anyone Websites referred in the month white-collar-crime-19079603
can find bargains at Americas of December-2013 to February 6. www.hindustantimes.com In-
greatest garage sale, Pub- Harper 2014: dia-News NewDelhi
Business, Ist edition 1. www.indianresearchjournals.com/ 7. www.india.indymedia.org/
17. Reid, S.T (1982): Crime and pdf/IJSSIR/2012/September/16. en/2005/05/210472.shtml
Criminology, 3rd edition, New York: pd https://www.deloitte.com/as- 8. www.theifp.org/research-grants/
Holt Rinehart, P 230. sets/Dcom-India/.../White%20 IFP-Whitepaper-2.pdf https://
18. Shenk, J.F & P.A Klause (1984): Collar.pdf www.law.asu.edu/Portals/34/
The Economic Cost of Crime to 2. www.lawcommissionofindia.nic. Dutcher.pdf
Victims, US Dept. of Justice, Bu- in/1-50/Report29.pdf www.livem- 9. www.legalservicesindia.com/.../
reau of Justice Statistics int.com/.../Whitecollar-crimes-ris- white-collar-crime-and-its-changing-
19. Sutherland, Edwin H (1940): ing-in-Indian-firms.... dim... www.en.wikipedia.org/wiki/
White Collar Criminality, Ameri- 3. www.jbnagarca.org/.../White- White-collar_crime
can Sociological Review, vol.5, no.1 Collar-Crimes-WCC-Arbitration- 10. www.trac.syr.edu/tracreports/
20. Sutherland, Edwin H (1959): Indian-law-22ja... www.rediff.com bulletins/white_collar_crime/fil/
White Collar Crime, P-31, NY, News www.legalgensis.blogspot. www.kaplegal.com/.../Corporate_
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21. Tappan Mel (1977): Survival dia-view-point.html www.ficci.com/ pdf www.scholarlycommons.law.
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Handbook of Criminology, ed by nij/71090.pdf radhanathp@yahoo.com
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COVER
STORY
WHY BANKS SHOULD

GO FOR FORENSIC
ACCOUNTING
NEEDS AND
APPLICABILITY
Banks are facing a gradually difficult
scenario with the increase in scams. With
more regulatory inspections, banks are
under pressure to execute best practices.
In such a situation, forensic accounting
and auditing is therefore not an option but
the need of the hour
F ORENSIC accounting is an
attempt to snuffle out fraud-
ulent dealings from the finan-
cial records of banks and companies.
Kautilya was the first economist
who explicitly recognised the need
of forensic accountants. The oppor-
tunities for the forensic accountants
Pooja
Research Scholar, are growing at the rapid speed in re-
Faculty of Commerce, cent years. Forensic accounting is still
BHU, Varanasi emerging in India.
The Reserve Bank of India has
made compulsory forensic account-
ing and audit for banks in India. Still
banks are cautious in approaching
certified scams and fraud examiners,
and are mostly dependent on inter-

nal auditors. In the Indian circum-
stances the forensic accountants are
the most required in the wake up of
the rising frauds and scams. After the
Satyam scam, forensic examiners are
much in demand as many compa-
nies want to recognise what could
be the early warning signals of a Sat-
yam kind of fraud in other Indian
companies1.
Objectives: This paper aims at
examining the present status of ap-
plication of forensic accounting
and relevance in curbing scams and
frauds in banks operating in India.
Research methodology: The
article is based on secondary data
from various available resources like
reports of the RBI, reports and doc-
uments of India forensic on bank
frauds, journals, books and web ma-
terials related to the study. Simple
tabular analysis and graphical pres-
entation has been used for analysis.
Forensic accounting: A brief

outline
The inclusion of accounting, audit-
ing and investigative expertises are
the speciality known as Forensic Ac-
counting. Forensic Accounting is
the application of accounting princi-
ples, theories and discipline to facts or
hypotheses at issues in a legal dispute
and encompasses every branch of ac-
counting knowledge according to
the American Institute of Certified
Public Accountants (AICPA). Like-
wise, forensic accounting provides an
accounting investigation suitable to
the court which will form the basis
for discussion, debate and ultimately
dispute resolution2.
According to the Journal of Foren-
sic Accounting, Forensic accounting
is sufficiently thorough and com-
plete so that an accountant, in his/
her considered independent profes-
sional judgment, can deliver a find-

COVER
STORY
ing as to accounts, inventories, or the be converted to money. On the oth- was recommended in the context of
presentation thereof that is of such er hand, accounting adjustments like electronic banking in the Report of
quality that it would be sustainable revaluing inventory are very difficult. RBI Working Group on Informa-
in some adversarial legal proceeding, Consequently, inaccuracy whether tion Security, Electronic Banking,
or within some judicial or adminis- open errors or planned manipula- Technology Risk Management and
trative review.3 There are two major tions, always absorb actual money, Cyber Frauds, as a deliberate act
components of Forensic accounting: not paper representations4. That is of omission or commission by any
Litigation services- recognises the why it is imperative for all banks to person, carried out in the course
role of an accountant as an expert adopt and go with the practices of of a banking transaction or in the
consultant and Investigative services- forensic accounting. books of accounts maintained man-
requires the use of forensic account- Some statistics on scams and ually or under computer system in
ants skills and may require court- frauds in the Indian banking banks, resulting into wrongful gain
room testimony. sector: Fraud can be defined as to any person for a temporary pe-
any behaviour by which one per- riod or otherwise, with or without
Needs and applicability of son aims to get an unfair advantage any monetary loss to the bank5. A
forensic accounting in banks over another. A definition of fraud year wise fraud cases reported by the
Forensic accounting has emerged as a
valuable means to identify, classify and
trail banking transactions that were
improperly griped or authenticate Table 1: Year-wise number and amount of fraud cases in the banking sector
that financial dealings were proper. No. of cases in absolute terms and amount involved in Rs. crores
Moreover, the sensitive temperament
Year Number of Cases Amount of Frauds
of the accounting for banks and oth-
er financial institutions, corporations 2009-10 24791 2037.81
perform composite banking activi- 2010-11 19827 3832.08
ties that might entail misdeeds. Thus 2011-12 14735 4491.54
forensic accounting helps to preserve 2012-13 13293 8646.00
the truthfulness of banking transac-
Total 72646 19007.43
tions and financial statements.
Needs of Forensic Accounting Source: Speech of Dr. K. C. Chakrabarty , Deputy Governor, Reserve Bank of India on July 26
in Banking Transactions: Foren-
sic accounting is quite imperative in
the banking business because at one Figure 1: Yearwise Fraud Cases in Banks
side, forensic accounting philoso-
phies are requested because there is
Fraud cases in numbers and amount of
doubt of happening of probable loss- 30000

24791
es or unlawful activities. At another 25000
side, forensic accounting practices
frauds in Rs. Crores
19827
are needed to optimistically validate 20000
14735
that all banking activities in fact per- 15000
13293
formed correctly.
In all other businesses that have in- 10000 8646
ventory, products, patents, and most 5000 2037.81
other assets are converted to a money 3832.08 4491.54
0
value for accounting purposes. In the 2009-10 2010-11 2011-12 2012-13
banking industry, their inventories
are money. On one point, it makes Number of Cases in absolute terms
the accounting easier since values of
widgets and other things need not Amount of frauds in Rs. Crores

banking sector with the amount in- Table 2: Bank Groupwise fraud cases
volved is given in Table 1.
(No. of cases in absolute terms and amount involved in Rs. Crores)
Table 1 and Figure 1 show that the
number of frauds has declined from Bank Group Fraud Cases Fraud Amount
24791 cases in 2009-10 to 13293 In absolute In Percentage Rs in. Crores In Percentage
cases in 2012-13, while the amount terms
involved has increased from Rs. Nationalised 29653 17.53 24828.01 83.01
2037.81 crores to Rs. 8646.00 crore. Banks including
SBI Group
Additionally, bank groupwise
study of frauds discloses, while the Private Sector 93331 55.16 3848.19 12.87
private sector and the foreign bank Banks
accounted for a majority of frauds by Foreign Banks 46206 27.31 1233.92 4.12
number (82.47%), while in case of Total 169190 100.00 29910.12 100.00
total amount of frauds involved, the Source: Speech of Dr. K. C. Chakrabarty , Deputy Governor, Reserve Bank of India on July
public sector banks accounted for 26,2013
nearly 83% of total amount involved
in all reported fraud cases can be seen
from Table 2. Figure 2: Bank Groupwise Fraud Cases
Broadly, the frauds reported by
banks can be divided into two main 100000 93331
Fraud cases in absolute terms and amount of
sub groups: technology and advanc- 90000

es related frauds. A closer assessment 80000
of Table 3 below demonstrates 70000
frauds in Rs. Crores
that comparatively advances related 60000

frauds of more than Rs. 1 crore have 50000
46206
increased over the last four years in 40000 29653
case of nationalised banks, while de- 30000
creased in case of private and foreign 24828.01
20000
banks operating in country. 10000 3848.19 1233.92
Considerably larger amount of 0
technology related frauds by amount Nationalised Banks Private Sector Foreign Bank
involved in frauds shows an increas- including SBI Group Banks
ing trend as per Table 4. Banks are
Fraud Cases in absolute terms
increasingly pushing customers to
adopt new service delivery propos- Fraud Amount in Rs. Crores
als like mobile phones, internet and
social media for improved efficiency
and cost savings. Data suggests that Table 3: Bank Groupwise Advance Related Frauds (value more than Rs. 1 Crore)
even fraudsters are planning newer Rs. in crores
ways of committing frauds and scams
Nationalised Banks Private Sector
by taking advantages of the loop- Year
including SBI Group Banks
Foreign Banks Total
holes in technology systems and pro- 2009-10 736.14 162.48 45.26 943.88
cesses conducted by banks. 2010-11 1820.12 523.49 33.20 2376.81
From Graph 4, it is evident that
2011-12 2961.45 138.99 83.51 3183.95
the actual amount involved in the
2012-13 6078.43 117.34 16.75 6212.52
occurrence of cyber frauds are low
Total 11596.14 942.3 178.72 12717.16
in nationalised banks compared to
private and foreign banks. Source: Speech of Dr. K. C. Chakrabarty , Deputy Governor, Reserve Bank of India on July
26,2013.
Applicability of Forensic Ac-

COVER
STORY
Figure 3: Bankwise Advance related Frauds (in Rs. crore)
6078.43
AFTER THE SATYAM
SCAM, FORENSIC
2961.45 EXAMINERS
736.14
1820.12
ARE MUCH IN
45.26
162.48 523.49
33.2
138.99
83.51
117.34
DEMAND AS MANY
16.75
2009-10 2010-11 2011-12 2012-13 COMPANIES WANT
Nationalised Banks including SBI Grup TO RECOGNISE WHAT
Private Sector Banks COULD BE THE EARLY
Foreign WARNING SIGNALS
OF A SATYAM KIND
counting in Banks: Forensic ac- quick investigation, monitoring and OF FRAUD IN OTHER
counting delivers many benefits in
banking activities to expose problems
follow up of frauds. The significant
recommendations of Reserve Bank
INDIAN COMPANIES
or verify accuracy and true symbols of India are to improve the quality of
of operations. Instead of only veri- the fraud investigations.
fying books and records in balance, RBI further says that fraud in- curb the bank frauds the unique
special testing and investigative pro- vestigation requires capability in programmes offered by India foren-
cedures can target probable misdeeds forensic accounting and audit and sic. These programmes are probably
that cannot be normally exposed by also transactional expertise. In this dedicated towards banking frauds.
classic bank auditing process. Re- regard, banks may take immediate In such circumstances, forensic ac-
serve Bank of India expressed seri- steps to identify staff with prop- counting is a precious method in
ous distress on the worsening quality er aptitude and provide necessary examining, and preventing frauds
of the resources. Reserve Bank of training to them in forensic ac- in banks that were improperly han-
India promotes that from the oper- counting/audit so that only such dled. It is a fact that complex bank-
ational point of view, banks may take skilled staffs are organised for in- ing activities involve irregularities.
certain measures to ensure effective vestigation of large value frauds. To Thus forensic accounting helps to
Table 4: Bank Groupwise Technology Related Frauds

Rs. in crores
Year Nationalised Banks Private Sector Banks Foreign Banks Total
including SBI Group
2009-10 1.82 34.68 26.88 63.38
2010-11 3.39 21.87 14.77 40.03
2011-12 7.26 16.6 14.60 38.46
2012-13 9.85 35.06 22.45 67.36
Total 22.32 108.21 78.7 209.23
Source: Speech of Dr. K. C. Chakrabarty , Deputy Governor, Reserve Bank of India on July 26,2013.

Figure 4: Bankwise Technology related Frauds (in Rs. crore) to light in recent years which pose a
significant challenge to all stakehold-
ers in the banking industry. Banks are
34.68 facing a gradually difficult scenario
35.06
with increased scams fraudulent in-
cidents and thereby directly affecting
21.87 22.45
26.88 outcome and increased cost of com-
16.6
pliance.With increased regulatory in-
14.77 spections, banks are under pressure to
14.6 execute best practices. In such a situ-
1.82 3.39 9.85 ation, forensic accounting and audit-
7.26
ing is therefore not an option but the
2009-10 2010-11 2011-12 2012-13 need of the hour.
Nationalised Banks including SBI Grup References

1. CA. Rajkumar S. Adukia: FO-
Private Sector Banks
RENSIC ACCOUNTING;re-
Foreign trieved from www.caaa.in on July
10, 2014
2. Pranam Dhar & Anirban Sarkar:
protect the reliability of banking ening effect on self-assurance in the FORENSICACCOUNT-
transactions and financial accounts. banking system and may damage ING:ANACCOUNTANTS
the stability of the economy. VISION;Vidyasagar University,
Conclusion They can bring down banks; un- Journal of Commerce,Vol. 15, March,
The impact of frauds on banks in dermine the Reserve Bank of Indias 2010
monetary transactions are more sig- decisions, etc.The increase in amount 3. Md. Jahirul Islam, Md. Habibur
nificant as their operations involve involved is largely attributable to the Rahman and Mohd.Takdir Hossan:
transaction of funds. Side by side, few large value advances and tech- Forensic Accounting as a Tool for
frauds can have a potentially weak- nology related frauds that have come Detecting Fraud and Corruption:
An Empirical Study in Bangladesh;
ASA University Review,Vol. 5 No.
2, JulyDecember, 2011
4. William Pirraglia: Banking & Foren-
THE IMPACT OF FRAUDS ON BANKS IN sic Accounting; retrieved from http://
www.ehow.com/ banking-forensic-ac-
MONETARY TRANSACTIONS ARE MORE counting.html on July 12, 2014
5. Dr. K. C. Chakrabarty , Deputy
SIGNIFICANT AS THEIR OPERATIONS Governor, Reserve Bank of India on
July 26,2013 during the Nation-
INVOLVE TRANSACTION OF FUNDS. SIDE BY al Conference on Financial Fraud
SIDE, FRAUDS CAN HAVE A POTENTIALLY organized by ASSOCHAM at New
Delhi
WEAKENING EFFECT ON SELF-ASSURANCE IN 6. Rashmi Panse (October 12, 2013):
RBI Circular on forensic auditing;
THE BANKING SYSTEM AND MAY DAMAGE retrieved from http://riskpro.co.in/
rbi-circular-on-forensic-auditing on
THE STABILITY OF THE ECONOMY July 2014
pooja.bhu091@gmail.com

COVER
STORY
FORENSIC ACCOUNTING
ELIMINATES EPIDEMIC ILLS
IN BUSINESS: A CONCEPTUAL
FRAMEWORK
There is great scope for forensic accounting during mergers,
amalgamations and acquisitions, tax investigations, economic
crime investigations, all kind of civil litigation support,
specialized audits, and even in terrorist investigations
T HE global scenario
of business is in dras-
tic changes at larger
level due to liberalization, pri-
vatization and globalization.
nerable suffers due to these
ills.These ills should be traced
and immediate steps should
be taken for the eliminations
and avoidance.
lar sector or country. It is
also identified that the prev-
alence of fraud is increasing
in emerging markets. This
conceptual paper attempts to
This change leads the busi- When a crime is occurred, place discussion on the con-
ness people to compete each the law directs the officials of cept, need and the role of the
other that tend to squeeze forensic department to see forensic accounting in solv-
Dr. R. Suresh the margin of their business. the scene of crime and to ing problems of business by
Head, Department of
Commerce
Due to this cut-throat com- trace the persons involved by way of business frauds, crimes,
Madurai Kamaraj petition, the business units identifying the finger prints and scandals etc. It also tends
University, Aundipatti are forced to carry out their etc., to bring out such crim- to highlight the elimination
activities at larger level. These inals. Like that the crimes strategies of corporate crimes.
large numbers of transaction related to the business can
with large number of peo- also be traced and identified Concept of Forensic
ples results a larger number through proper investigations Accounting
of outputs. This hectic and and inspections. In com- As per the Indian Business
condensed mode activity mercial term, this process is Law, the business firms are
gives birth to the white col- named as Forensic Account- compelled to prepare the
lar crimes, scandals and frauds ing. It was realized that only books of accounts. It is sup-
at all levels. The plight of the a small percentage of losses posed to be an authenticate
elevating corporate scandals, from the above are recov- record for the transactions
frauds, crimes are becoming ered, mostly it is committed that took place in the busi-
depressingly mundane. These by senior management and ness. In the companys con-
epidemics hurt the countrys executives. Greed is identified text, it is necessary to get
economy. The corporate as one of the main motivation approval for such records in
crimes, frauds, scandals are for committing frauds and it the annual general meeting
the problematic and the vul- is not restricted to a particu- before it comes as a published

report. The above mechanism needs mon phenomenon collapsing many pute resolution. It encompasses both
cleverness and professionalism call- business entities and weakening the litigation support and investigation
ing for extreme good faith, integrity economy of such business firm in accounting. The concept of forensic
and transparency. Any misleading or particular and nation as a whole.The accounting is different from old deb-
shortfall of any of these is likely to be corporate ills include an array of ir- it and credit accounting as it provides
taken seriously. Any slippage in this regularities and illegal activities char- and accounting analysis that is suita-
regard, has pulled the authorities and acterized by international deceptions ble to the organization that will help
professional accounting bodies into led for the forensic accounting inter- in resolving the disputes that arise in
a new perception that goes beyond nationally. the organization. In a nutshell, it is
the statutory audit report of the ac- As per Websters dictionary, be- possible to say that forensic account-
counts of the business firms and in longing to, used in or suitable to ing is for proactive checkups.
some ways it emphasis on the corpo- courts of judicature or to the public
rate governance which, according to discussion and debate stands as the Need for Forensic Accounting
critics, are no better than lime wash meaning of forensic. In this context The need for forensic accounting is
of the affairs of the business firms. forensic is suitable for use in a court due to failure of audit systems in the
The vexing problems of the cor- of law, and it is to that standard and business firms as the organizational
porate are not only that even the potential outcome that the persons internal audit and the other regula-
tory procedures failed to trace the
errors in the managerial system. In
U.S.A. a nationwide study was con-
ducted revealed around 39% of the
organizations have considered the
need for forensic accounting, 28 %
said that they already sought help, 18
FINANCIAL FRAUDS HAVE BECOME A % said that there is no requirement
of assistance and 15 % were unsure of
COMMON PHENOMENON DESTROYING MANY whom or where they should turn to
BUSINESS ENTITIES AND WEAKENING THE such help. It was also estimated that
the typical organization losses up to
ECONOMY OF THE NATION. CORPORATE ILLS 5% of its annual revenue to fraud.
INCLUDE AN ARRAY OF IRREGULARITIES AND So many experts indicated the stock
market woes and sluggish economy
ILLEGAL ACTIVITIES CHARACTERIZED BY that have forced organizations to take
harder look at their numbers and
INTERNATIONAL DECEPTION seek help in determining the rea-
sons for financial losses. Most of the
occupational frauds committed by concerned generally have to work. In experts elaborated and said, forensic
the employees usually involves the general, the term forensic accounting accounting is to be heavily employed
theft of assets and embezzlement that or financial forensics is the special- because of company downsizing,
has been the most often commit- ty practices are of accountancy that noting that some management and
ted frauds for the last three decades describes engagements that result control layers within the firms have
and the ever changing economic, from actual or anticipated disputes been eliminated causing fraudulent
sociological and technological en- or litigation. The integration of ac- activities to go unnoticed. Unethi-
vironment as well as the increasing counting, auditing and investigation cal management in large concerns
social and financial terrorism have skills yield the specialty is known as irrespective of levels of management
led to the business firms to trace and forensic accounting. It provides an of the concerns leads the help of fo-
identify the malpractices function- accounting analysis that is suitable to rensic accounting. Internal audit and
ing within the organizations. The the court that will form the basis of audit committees as a part of the
financial frauds have become a com- discussion, debate and ultimately dis- management function neither could

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STORY
nor throw light on different facts and both individually and as a group. the frauds at 100%, but it may have a
other hidden aspects because, Fraud detection acts as a deterrent chance to reduce the level of occur-
a. Rotation of statutory auditors by sending a message to likely fraud- rence of such ills. This can be made
touches a part of the problem while sters that the organization is actively with the following methods.
it requires emphasis but it adversely fighting against fraud and those pro- 1. Creating and developing sound
needs longer duration. The method cedures are in place to identify any ethical culture with code of ethics or
of appointing statutory auditors itself illegal activity occurred. The chance an anti-fraud policy by embedding
not a fool proof as its brooks collu- of being caught red handed will of- the ethical behavior needs within the
sion and lobbying. ten persuade a potential perpetrator culture of business firms.
b. The certificates of the auditors not to commit a fraud. Complemen- 2. Providing of fraud risk training
are hardly scrutinized carefully, espe- tary detection controls should also and awareness to peoples through
cially when the reports are unclean be in a place to counter the fact that formal education and training ses-
and unqualified. the preventions controls may be in- sions as a part of the overall risk man-
c. The internal auditors can surely sufficient in some cases. It is essential agement strategy. Main focus should
detect what was happened but they to recognize that an ounce of pre- be given to those with the role in the
are hardly in a position to initiate vention is better than a pound of prevention to scan the managers and
proper action in proper time. cure. The anti-fraud strategy forms a staff functioning in high risk areas,
The nature of the beast-fraud is not triangular shape to protect the busi- such as procurement and payment of
an accident. It is willful. It is deliber- ness from ills as given below; bills.
ate deception committed for dishon- 3. Formation of sound internal con-
est gain. When the fraudulent activ- trol system comprising with all those
ities continues in the business that Detection Deterrence
policies and procedures that taken
will show a red alert signal and lead together, support a business firms ef-
that particular organization is going fective and efficient operations.
to face its doldrums. It is noticed that Response 4. Selection of qualified, experi-
13fraudulent activities are spoiling enced, potential and suitable persons
at larger level globally. Those fraud- through screening during pre-em-
ulent activities that show red signals ployment is one of the best ways for
are Statement fraud and fraudulent Prevention preventing frauds.
practices in the corporate entity, loan
fraud in and between financial inter- Fraud Detection methods: It is
mediaries, Cash fraud- Skimming, already said that the preventive steps
Cheque fraud, Insurance fraud, Em- cannot curb the menace of fraud at
ployer fraud in insurance, Medical 100 %. It will ensure the occurrenc-
fraud, Bankruptcy fraud, Tax fraud, Fraud prevention methods: Most es of such frauds in a timely manner.
Securities fraud, Pyramid schemes of the people commit fraud and only Fraud detection strategy should in-
fraud, Money laundering, and Cyber a minority of the greedy and needy volve the use of analytical and other
fraud like unauthorized access of pri- do so. Adoption of methods may de- procedures to highlight anomalies,
vate area in internet, hacking, theft of crease motive, restrict opportunity and the introduction of reporting
e-forms, email bombing, data did- and limit the ability to do. In case mechanisms that provide for com-
dling, salami attacks, denial of service of deliberate acts of fraud, the aim munication of suspected fraudu-
attack, virus or worm attacks, logic of preventive measures is to reduce lent activities. The key elements of
bombs, trojan attacks. opportunity and remove temptations a comprehensive fraud detection
from potential offenders. Prevention system would include exception re-
Anti-fraud strategy techniques includes the introduc- porting, data mining, trend analysis
Effective anti-fraud strategy has four tion of policies and procedures that and ongoing risk assessment. The
main components. They are closely controls and activities such as train- methods of detection of frauds are
interlinked and they play a significant ing and fraud awareness to stop from Internal and external tip-off,Whistle
role in curbing and combating fraud, occurrence. It is not possible to curb blowing, Law enforcement investiga-

based upon the size of the com-
ESTABLISHING AN EFFECTIVE REPORTING pany. At this point, it is essential to
MECHANISM IS ONE OF THE KEY ELEMENTS highlight that forensic accounting
eliminates the business ills. Forensic
FOR FRAUD PREVENTION AND DETECTION. accounting is a fastest growing area
of accounting now that enables in
THE CHALLENGE FOR MANAGEMENTS thinking and enhancing the chanc-
es of success in business life, so it is
IS TO ENCOURAGE THOSE PEOPLE WITH working in most major accounting
STRAIGHTFORWARDNESS TO REVEAL SUCH firms and going to become a great
source for the business firms to
FRAUDULENT ACTIVITIES surmount all the problems. Hence
there is a great scope for forensic
accounting in investigation during
merger, amalgamation and acqui-
sition, tax investigations, economic
tion, Change of personnel, Transfers an assertion to determine its cor- crime investigations, all kind of civil
of personnel to break their contin- respondence to established criteria litigation supports, specialized au-
uous service in one area for a long carried out in a manner suitable to dits, and even in terrorist investiga-
period, Internal and external audit, the court. tions.This is the right time to adopt
Corporate security, Risk manage- and adhere strictly the forensic ac-
ment and Forensic audit Techniques and tools counting at all the levels of public,
Establishing an effective report- of forensic audit government and corporation ac-
ing mechanism is one of the key 1. Benchmarking comparing one counting as an accounting tool to
elements for fraud prevention and financial period with another or the prevent and cure the entities from
detection. The challenge for man- performance of one cost centre, or the financial and other ills.
agement is to encourage those business unit, with another, overall
people with straightforwardness business performance with its stand- References
to reveal such fraudulent activities ards defined. 1. CIMA, (2002), Fraud Risk Man-
identified by them with evidence 2. Ratio analysis used to identify agement: A Guide to Good Practice.
in time. In this area there are many any abnormal trends and changes. 2. Dr. Chattopadhyaya . P., Forensic
conflicting emotions influencing 3. System analysis to examine the Accounting, the Management Account-
the potential whistleblowers are systems in place and identifying any ant, March 2003.
working group, disinterest, fear of weaknesses that could be opportuni- 3. Ernest and Young, (2003, Fraud,
consequences and suspicion rather ties for the fraudsters. the unmanaged Risk www.ey.com
than proof. The organizations must 4. Specialist software- like audit tools 4. Kimon Louvaris and Joel Siegel,
keep in mind that the employees for data matching analysis can prove Forensic Accounting: Investigative Prob-
are not only the sources of fraud very useful. lems and Methodologies,The Manage-
tips, but also the customers, ven- 5. Exception reporting that gen- ment Accountant, April 2006,Vol.41,
dors, creditors, external stakehold- erates automatic reports that un- No.4
ers and even competitors may be changeable for results that fall outside 5. Dr. Suresh. R, Forensic Account-
the indicators of fraud occurring in of predetermined threshold values, ing- A Life Saving Drug for Corporate
the business firm. enabling immediate identification of from Ills, Edited book of Department
results deviating from the norms. of Commerce, University of Madras,
Forensic Audit Corporate Crime and Governance- Is-
The frauds that are the ills of busi- Conclusion sues Challenges and Remedies, 2012.
ness firms can be clearly flashed with The need for fraud prevention is 6. www.pricewatercoppers.com
the flood lamps of forensic audit. An necessary in every company, but
examination of evidence regarding the degree of protection varies jeyasuresh_suresh@yahoo.co.in

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STORY
VIEWING THROUGH THE

FORENSIC LENS
Internal fraud is a cancer-like situation that needs to be
nipped in the bud and got rid of at the earliest opportunity.
Investigation determines whether the criminal activities are
those of an insider and examine the action that must be taken
CA R S Raghavan
Banking and Financial
Analyst, Bangalore
former AGM, Vijaya Bank

T HE word Forensic means
suitable for a court of law.
The Forensic Accountant
has to look beyond what the num-
ber reveals and comprehend the
of statement of financial affairs of
an entity. Various types of account-
ing such as cost accounting, man-
agement accounting, inflationary
accounting, financial accounting,
financial and business operations.
This is evidenced in the recent
appointment of Forensic Auditor
in various financial irregularities
of otherwise reputed business and
underlying circumstances with an- etc are already in place. But, of late, banking entities.
alytical mindset. Accountants job Forensic Accounting has gained As a fall out of LPG, the profes-
involves basically an intelligent prominence. In the financial world, sion of Forensic Accounting has
work and the job of Forensic nothing ends but something begins been growing in stature. Huge ex-
Accounting is the job of intel- anew, sprung from the seeds plant- penses incurred in technology ad-
ligent Accountant. A simple defi- ed earlier, mainly owing to serious vancement, bulk purchases, software
nition of Forensic Audit is the irregularities in the financial deals. procurement, financial products,
converse of the basic definition Initially, no assumptions and pre- greed of the general populace, etc.,
of Auditor, which is Auditor sumptions can be made while tak- provide ample opportunities for the
should be a watch dog and not the ing up the job of Forensic Auditor forensic accountant to tread on and
bloodhound. Forensic Auditor is as that may serve as a screen cloud- furrow for the wrong doings. The
the bloodhound trying to sniff out ing the reality. Accounting and An- functions of forensic accountant
fraud and criminal financial trans- nual Report are the language of are akin to the blind man entering
actions through documentary evi- business activities through which a dark room during midnight in
dence. While the external or statu- performance communication is search of a black hat that was not
tory auditors look for numbers, the made. Forensic Accounting and there, as he has to go beyond the
forensic auditors look beyond the Audit awareness enhances credibili- figures and statements so as to un-
numbers, vigilantly going beyond ty of the auditing profession as well. earth the fact.
the routine assignment on account- Forensic Accounting is the
ing, auditing, inspection, etc. integration of accounting, au- Forensic lens
The purpose of Forensic diting & investigative skills with Any disagreement between what
Accounting is to reduce the a view to obtain a particular re- has happened and what should hap-
Fraud Risk, the likelihood of sult to withstand the legal scru- pen financially that involve action
fraud remaining undetected in tiny & administrative proceed- from the Court of Law is a field
business entities, as the statutory ings against the person who has area for forensic exercise and the fo-
audit mechanism may not throw committed the fraud. A Forensic rensic lens should be polished for a
light on all the financial frauds tak- Accountant gathers lot of informa- better view. Forensic Audit exercise
en place in the business operation, tion and undertakes detailed anal- basically involves investigation into
during the entire period covered in ysis that is capable of producing as the financial dealings of a commer-
the audit. With the advent of tech- irrefutable evidence in a Court of cial entity, more specifically in the
nology and globalization of finan- Law. context of alleged fraud and pri-
cial transaction, number of white It is the practice of utilizing the ma-facia serious financial irregular-
collar crimes has exponentially expertise of auditing, knowledge ities, so as to find out the facts. The
grown and auditing requirements of accounting, aptitude of analyt- very important aspect of the Foren-
need to be sharpened with foren- ical and investigative skills to assist sic Audit is to gather unassailable
sic techniques to establish evidences in legal matters and application of evidence to support the findings as
to book the gentle & soft financial the same to serve as evidence of it should withstand the admissibility
criminal. inappropriate economic / financial in a court of law.
With Liberalization, Privatization transaction and reporting suitable Forensic Audit can be requisi-
and Globalization (LPG) making to the purpose of establishing prop- tioned by the business entity itself
in-roads into the financial world, er accountability. Days are not far to unearth any wrongdoing. In the
modern accounting appears to be off to engage Forensic Accounting process, the auditor needs to carry
no longer confined to book keep- experts to carry out special and spe- out a lot of background checks on
ing which is merely the recording cific assignments on irregularities in both the input for and output from

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STORY
the commercial entity. All major fi- ogy knowledge to supplement the When the loss of financial fraud is
nancial outstanding amount shown expertise in the domain of finance over Rs 50 lakhs or it affects more
in Balance Sheet and the closing bal- and accounts. Recently, the finan- than 5000 people, it enters the do-
ances drawn in the Profit and Loss cial irregularities unearthed in main of SFIO. On a report from
Statement needs to be thoroughly Bhushan Steels, Dena Bank and Registrar of Companies investiga-
probed into and their veracity and Syndicate Bank resulted in the tions are ordered when cases are re-
genuineness established beyond requisitioning the expert ser- ferred to SIFO by the Government.
doubt to pass through the Forensic vices of Forensic Auditor to go In the recent episode of M/s Bhu-
Audit. At times, the auditor may into the consortium bank loan shan Steels, the consortium banks
have to extend his network to a utilization by corporate and - a large one with exposure of Rs
number of non-financial areas the misappropriation funds in 40,000/- cr. ordered, inter-alia, for
such as e-mails, telephones, on- the banks concerned. These in- the conduct of Forensic Audit so as
line banking transactions, and cidents revolved around the Bulk to verify about usage of bank loans
interview with bankers, sup- Advances and Bulk Deposits at the for the right and approved purpos-
pliers, customers, management bank level. es, without involvement of fund di-
and other employees also. With the kind of financial scams version, owing to the fall out of the
The parties involved in possible and frauds happening in India, arrest of one of the lenders chief
litigation would be able to clearly thanks to opening up of economy carrying the allegation of bribery.
understand their own position and through the LPG route, services Formal professional accounting
may be willing to settle the issue of chartered accountants would be knowledge and skills coupled with
rather than proceed with litigation, greatly used. One can name any the ability to pay attention to the
which is time consuming and cost- common commodity or product, it minutest details to facilitate an in-
ly. Forensic Accountant / Auditor is true that someone or the other is depth analysis and interpretation of
should question the seemingly un- connected to a scam associated with data are pre-requisites for taking the
important and benign transaction the same, be it stamp paper, fodder, profession to greater heights.
/ document and check for the in- telecom, securities, public distribu- The revised Companies Act 2013
consistencies and discrepancies, if tion system, cement, banking, min- and cyber-crime involving financial
any, that may not be noticeable for ing, etc. The political administration transactions, unearthing of black
naked eyes. When the dispute grad- of governing the state finances, le- money, bribery & anti-corruption
uates to presence in courts, the Fo- gal structure and financial systems cases involving higher up person-
rensic Accountant, as an expert, may in India demands the very special alities provide ample opportunities
have to testify the witness to assist breed of Forensic Accountants. in the areas of Forensic Audit. Cor-
the court in its deliberations and in Both Central Bureau of Investiga- porates engage Forensic Accounting
deciding the issue, besides forming a tion (CBI) and Criminal Investiga- experts to carry out special and spe-
professional opinion by accessing all tion Department (CID) personnel cific assignments on irregularities
the relevant documents. . are involved in one way or the oth- in financial and business operations
er in forensic accounting or forensic in a venture, as could be made out
Indian scenario auditing work. from the fact that audit and consul-
Forensic Accounting professional The formation of Serious Fraud tancy firm Grant Thornton, which
is more a private investigator with Investigation Office (SFIO) in 2003, recently conducted a forensic audit
sixth or for that matter seventh sense after the Joint Parliamentary Com- of scam ridden National Spot Ex-
than the stereotypic book keep ac- mittees probe into Ketan Pariekh change Ltd (NSEL), is understood
countant. In fact as the business scam involving one of the public to be engaged by the Forward
environment changed from sector banks is a stepping stone for Markets Commission to do simi-
paper based to electronic chip the recognition being accorded to lar exercise for Multi-Commodi-
based, the demand from Forensic forensic accounting concepts. It is ty Exchange of India, an associate
Accountant has enlarged to system functioning under the umbrella of of NSEL. Forensic Audit has been
based. He should and is expected to Companies Act that was revised re- commissioned on the functioning
possess sound Information Technol- cently after more than five decades. of United Commodities Exchange

(UEX) owing to siphoning of Cor- aspect of forensic accountant as the adopt best practices in accounting,
pus Fund and employees exodus. cash / money generated unauthor- improving controls through pol-
izedly has to be utilized and must icy documents, etc.; such entities
Forensic accounting services change its form into tangible as- would be keen to adopt methods to
Forensic Accountant provides a set, apart from the lavish spending prevent external as well as internal
number of services inclusive of / life style practiced by the fraud- fraud as well as to limit losses from
investigation, confirmation of the ster. Tracing and identifying the fraud by early identification of risk
fraud, litigation support, etc., which assets when it is under unlawful factors. The requirements of Basel
refers to the factual presentation of possession or control are the basic norms for financial institutions, Sar-
issues related to existing or pend- requirement to track the acts of a banes Oxley Act, etc., are focused to
ing litigation in connection with financial fraudster. reduce the possibility of accounting
the fraud and potential one too. Besides, the new government is scams and financial collapse on ac-
Quantification of damages due pushing for Infrastructure Sector count of fraudulent transactions, by
to the breach of a contract or due such as, Power,Telecom, Road, Port, insisting for better disclosure prac-
to the infringement of a patent / etc., coupled with the associated ac- tices.
copyright assists in arriving at out tivities in Toll Collection, Airport as In the case of companies, the Au-
of court settlement. Forensic Ac- well as upcoming metro rail servic- dit Committee of the Board is the
counting / Audit promises to be the es being stretched to meet the am- ultimate authority in these matters.
hot career in the days to come and bitious ambience. These infrastruc- It is the endeavour of all the business
the personnel involved should be ture areas provide good scope for a entities, like the changes happening
unbiased and independent in their large number of Sub-contract ac- in the cultural aspects, making in-
assignment. tivities in which many cases of Fo- roads, to align and imitate the best
Considering the financial irregu- rensic Audit may be requisitioned. accounting practices adopted glob-
larities committed by various com- In the US, pronouncement of ally / in western countries. Besides,
mercial, Non-Governmental and The Sarbanes Oxley Act, 2002 internal fraud is a cancer like situa-
government entities, business and marks the beginning of putting in tion that needs to be nipped in the
demand for forensic audit servic- place a proper mechanism for the bud and got rid of at the earliest op-
es are on the rise. Indian financial publicly traded companies to estab- portunity. Investigation determines
market provides a good number of lish the procedures for questioning whether criminal activities of an
opportunities for such exercise so the practices adopted by the com- insider are involved and to examine
much so that the specialized firms panies with particular reference about action under vigilance angle,
started looking out to strengthen to accounting and disclosures. In having serious consequences. Fo-
the Human Resources for meeting the wake of international financial rensic Accountant documents the
up the challenges thrown now to scams associated with big corpo- findings in the form of reports, ex-
carry out the exercise by meeting rate such as Enron, World Com, hibits and collection of data / paper.
the exponential growth in demands. Xerox, and the domestic one such Investigation may also involve civil
Further, Reserve Bank of Indias as Satyam, Commodity Exchange, and administrative matters such as
requirement of Forensic Audit be- Securities, etc. and the capital mar- searching for hidden assets, interro-
fore a company can avail Corporate ket, securities, misuse of financial gation of outside parties, etc.
Debt Restructuring, when a Bank out lay in general, the profession of Thus, through Forensic Lens
Loan throws disquieting signals, is audit practiced by Chartered Ac- view would facilitate to verify
also paving way for volume increase countants in India has come under whether Due Diligence exercise is
in the forensic activities, be it ac- severe criticism as they were under carried out by the person, authori-
counting or audit. microscopic scrutiny of financial ties or Service Providers, as war-
Asset Tracing is a very poten- statements and accounting reports ranted by the situation as no straight
tial field for the forensic accounting users like government, public, busi- jacket approach of audit would
experts. Tracing of financial / bank ness sector, vigilance machinery, etc. yield result.
transactions for converting them As the economy continues to
into tangible asset is an important grow, business entities seek to rsraghavan007@yahoo.co.in

Round Table Discussion
on 'Forensic Accounting & Auditing'
16 August, 2014, Kolkata
A Round Table Discussion on Forensic Accounting

& Auditing was held on August 16, 2014 at EIRC
Auditorium of the Institute of Cost Accountants of India
is extremely important to protect the future losses and to
keep forward the checks and balances. He emphasized on
the importance of Whistle Blower and according to him it
organized by the Directorate of Research & Journal of is one of the most prominent tool in detecting frauds of an
the Institute. Shri Sukamal Basu, Former CMD & Chief organization. Shri Debashish Sarkar said that the Forensic
Vigilance Officer, Bank of Maharashtra, Shri Partha Accounting and Auditing requires to be concretized
Mukherjee, Addl SP, CBI, Anti Corruption Branch, Kolkata, to a large extent and the Laws and Constitution of our
Prof. Sanjay Banerji, Professor of Finance & Head of the country needs to be much more stringent. According to
Group, Nottingham University, U.K, CMA Mrityunjay Shri Khalid the VAT Frauds needs to be determined and
Acharjee, Associate Vice President, Balmer Lawrie & the Cost and Management Accountants play a huge role
Co. Ltd, Shri Debashish Sarkar, General Manager & Chief in determining the fraud. He said that VAT dealers must
Vigilance Officer, Allahabad Bank, Janwab Khalid Aziz be investigated and properly audited. All the dignitaries
Anwar, Sr. Joint Commissioner, Commercial Taxes of agreed that there is a need for proper data mining and
Govt of West Bengal were among the dignitaries who there must be a proper combination of data resources
were present on the dais and shared their valuable of different agencies. Also mandatory requirement
opinions and views on the theme concerned. Shri Basu of proper guidelines of Forensic Accounting must be
asserted the fact about the immense importance of the complied with. CMA Manas Kumar Thakur, Chairman,
Forensic Accounting and Auditing in every fraud detection Research, Innovation and Journal Committee, and CCM,
specially in the Corporate sectors where it becomes and CMA (Dr.) Debaprosanna Nandy, Director, Research
extremely difficult for the CBI officer to determine each and Journal, ICAI also shared their valuable views on the
and every loopholes of the same. He briefly discussed said topic. At the end there was a questionnaire session
on the various Acts viz. Foreign Corrupt Practices Act, beautifully resolved by the eminent personalities on the
U.K Bribery Act, Lokpal Bill, Companies Act, 2013 for dais. Shri Pradipta Ganguly, Deputy Director, Journal, ICAI
detection and control of crime. He accentuated on the ended the programme with a vote of thanks.
relevance of electronically stored information since
datas stored are heterogeneous in nature. Shri Partha IMPORTANCE OF FORENSIC
Mukherjee said that the Forensic Accounting is much
different than the Conventional Accounting. According
AUDIT STRESSED
to him the Forensic Accountants are the Bloodhounds Kolkata,18 August: Forensic accounting and auditing is
extremely important to protect the future losses of organizations,
where as the Conventional Accountants are the
said Mr. Mrityunjay Acharjee, associate vice-president, Balmer
Watchdogs. They deeply prevail into each and every Lawrie & Co. Ltd, at a round table discussion on forensic
transactions of an organization and also play the role of accounting & auditing organized by the Directorate of Research
an investigator. The Forensic Accountants too analyze & Journal of The Institute of Cost Accountants of India here last
the data with logical reason. He detailed on certain case week.
laws like Satyam, various Chit Fund Companies etc and
Mr. Partha Mukherjee, additional SP, CBI, Anti Corruption Branch,
explained the necessity of the Cost And Management Kolkata, said that forensic accountants are the bloodhounds
Accountants in this perspective. Shri Banerji believes the where as the conventional accountants are the watchdogs. Prof
dictum of the famous economist Gary Becker that harsher Sanjay Banerji, Professor of Finance, Nottingham University, UK,
the punishment, lesser the chances of crime. CMA stressed on the need for harsh punishment.
Mrityunjay Acharjee stated the fact that the mindset of
The Statesman
the fraudster is much more faster and smoother than any Kolkata, Tuesday 19 August 2014
ordinary gentleman and Forensic Accounting and Auditing

From the Research Desk
Role of CMAs in Forensic Accounting & Auditing
Resource Mapping Forensic management by suggesting Output-Input Correlation
auditing offers a toolset that innovative Cost Management Since forensic accounting is
company managers can use Techniques. a post-mortem approach, the
to help detect and investigate Justification of Expenditure CMAs have to measure output-
inefficient use of resources. The Detecting hidden assets and input correlation, to find out the
CMAs with the help of Resource unreported income requires an responsible input causing faulty/
Mapping can improve efficiency understanding of the individuals non-commensurate output.
by identifying areas of waste history and current situation Fund Deviation Policy CMAs
which would lead to efficient pertaining to their personal life can carry out fund's standard
utilization of resources. and financial affairs like business, deviation to measure changes
Risk Mapping Forensic Audit is investments and employment. in price over the time and can
an important tool to manage risk. The nature of the business provide valuable information
Risks are unanticipated events dictates the kind of expenses about volatility and risk.
that may affect the organizations generally incurred. Based on the Subrogation Litigation It
ability to meet its key objectives. individuals Income and Expense involves a team effort, requiring
Thus, CMAs can apply Risk Declaration, CMAs can develop professionals with unique training,
Mapping procedures to identify, suitable strategies to detect the experience and qualifications.
analyze and quantify the risks magnitude of fraud. CMAs will be an invaluable
interfering the achievement of Performance Study resource for the subrogation
organizational objectives. They Performance management recovery team to manage
can set action plans to improve applies to involve employees subrogation handling cost. This
risk management system to in accomplishing a units is how the CMAs can have an
smooth the progress of the mission and goals, improving exposure in the field of Forensic
management. overall unit effectiveness, Accounting.
Cost Management Techniques increase productivity of human Internal Control Mechanism
The cost of fraud to businesses resources and helping employees Companies should take advantage
is very much difficult to estimate understand the importance of of the residual benefits of utilizing
because all frauds and abuse their contributions. Thus CMAs a forensic accounting during an
cant be discovered, all uncovered can verify discrepancies through internal investigation as a cost-
frauds are not reported and performance study of the effective opportunity to enhance
civil/ criminal action are not organization. their internal control mechanism.
always pursued. However, Efficiency Study In this CMAs can help to build-up sound
legal, accounting, and increased context, CMAs can analyze internal control system through
insurance costs and loss of efficiency study on the basis of their expertise knowledge.
productivity associated with technical and allocative efficiency. We should not lose sight of the
hiring and firing employees are They can point out imbalance of objective of a forensic audit. The
additional factors that must be input-output ratio, thus would costs can be high, but the potential
considered. To quantify and lead the firm to efficiently allocate cost of not undertaking an audit and
assess all these indirect costs, resources to increase productivity implementing its findings can be
the CMAs can facilitate the and profitability in due course. even higher.

TAXATION
FISCAL POLICY: ADVICE FROM

THE ARTHASHASTRA AND
OTHER TAX HAPPENINGS
The tax departments generally look to the West for even
rudimentary training, whereas time-tested wisdom available in good
measure within our own treatises that have survived the ravages of
time is treated with aversion if not derision
T HE Kautilyan state portrayed in the

Arthashastra is a model of well-in-
formed and stable governance. It is a
master plan for founding an enduring state and
a supportive society. The manual of statecraft
honey in such a way that the bee is satisfied and
the flower itself is not damaged in the process.
Nevertheless, the tax insights of the treatise go
well beyond this popular quote. Some of these
would be touched upon, as follows.
propounded by Chanakya is timeless in many
of its principles and strategies. The Arthashastra On collecting the correct revenue
Dr. Ravindran has endless dos and donts, and offers a compen- Kautilya deprecates poor, below-par tax collec-
Pranatharthy dium of rights, duties and responsibilities by all tion but does not appreciate excess revenue col-
Advocate
Indirect taxes &
concerned. It is also a road-map for a productive lection either. As cited in The Arthashastra (Pen-
IPRs state where people would live happily and the guin 1992 edition, page 254):
collective wealth grows.The importance of trade
and commerce in generating the resources of the There are three kinds of fault in revenue collection
state is duly recognized by the Arthashastra. The causing loss through negligence, collecting more than
significance of foreign policy and the security in- just dues because of overzealousness, and being careless
about keeping expenditure well within income.
terests of the state also get wide recognition and
masterly tips. Of course, the treatise was written Kautilya explains his philosophy further:
in a bygone age and reflected also the ethos of He who causes loss of revenue swallows the Kings
its time. For example, some of the punishments wealth. If he produces double the anticipated revenue,
he eats up the Janapada (the taxpayers) by leaving them
and tactics advocated in the code of Chanakya
inadequate resources for survival and further production. If
for the safety of the social order and the upkeep the official brings to the Treasury the whole of the excess
of the ruling monarchy may seem abhorrent by revenue, he shall be given a small punishment.......
current standards. But that does not take away He who spends all the revenue (without bringing in
the time-tested utility of its benign insights. It any profit) swallows the labour of workers. He shall be
is in the area of tax collection and revenue gen- punished according to the nature of the offense...
eration that the advice from the Arthashastra of-
fers lessons that echo even unto the modern age, These are salutary principles of fiscal policy
more than two thousand years down the time- for any finance minister and the tax adminis-
line.The magnum opus of Kautilya is usually cit- trations. The Kautilyan caution to the state not
ed for its abiding advice on how to collect taxes to be pleased with the excess recovery of tax
as a bee would set upon a flower taking its beyond what was anticipated since it would be

THE ARTHASHASTRA, BEING A PRAGMATIC MANUAL
OF ALL-ROUND STATECRAFT, RECOGNIZED THAT A
TIME WOULD ARISE WHEN THE STATE WOULD HAVE
TO FIND ADDITIONAL REVENUES
tainted by the sapping of taxpayers income or earning ing newer expenditures repeatedly through additional
capacity is a universal message of perennial wisdom. imposts which are usually forgotten to be scrapped when
the raison dtre of the levies has lapsed.
Trade policy
The Kautilyan state was pragmatic that trade and com- Special levies
merce was among the major reasons behind the blossom- All demands under this heading are to be made only once
ing of socio-economic progress. So it lays down (echoed and not twice. If the quality of the land or the commod-
much later in David Ricardos theory of comparative ity yield was poor or middling, the additional tax shall
advantage and Michael Porters advocacy of competitive be proportional to the yield. No demand shall be made
advantage of nations). on a region which is useful for defense or a productive
Trade shall be directed towards markets which are profitable, enterprise such as forts, reservoirs, trade routes, new set-
losses must be avoided. Any official who incurs the displeasure of tlements, mines, forests or small regions near the frontier
the people shall either be removed from his post or transferred to (so as to avoid driving the frontier people into the hands
a dangerous region... of the enemy).
Buoyed by the pithy examples from the Arthashastra, let
Revenue budgeting for the State us now turn our attention to some significant decisions
The principle of revenue budgeting cannot be more sim- delivered recently in the arena of indirect taxation.
ply condensed than by the Arthashastra. Sample this:
The net resources available to the state was thus to be calcu- Justice for the purchasers of goods and services
lated by estimating the revenue during the year, adding outstand- The Refund code of Central Excise duty is contained in
ing dues of the previous year collected during the current year section 11B of the Central Excise Act. It has been made
and subtracting from this total committed Crown expenditure, applicable to Service tax too by a statutory provision in
remissions, uncollectibles and loans and advances... the Finance Act, 1994 which is the law of service tax. A
notable feature of the excise refund law is the provision
When need arose for additional resource enabling purchasers of goods and services to apply for
mobilization by the State refund of the duty/tax passed on to them by the tax-
The Arthashastra being a pragmatic manual of all-round paying manufacturers and service providers if such pur-
statecraft recognized that a time would arise when the chasers think that the tax was not payable at all by the
State would have to find additional revenues. So it care- those who paid it to the government. No qualification
fully provided for this as follows: A King who finds himself has been prescribed for the claiming purchasers as to their
in great financial difficulty, may collect (additional) revenue using status whether they be Indian Nationals, individuals or
methods described.... (Herein).... corporate entities etc. The only condition is that the re-
One of the permitted methods was to collect addi- fund should be claimed within one year from the date of
tional taxes on commodities and professions, but kautilya purchase. In the case of Haren Ventures Pvt Ltd Vs Asst
enjoins that the levies should be used only once and not Commissioner of Service Tax - 2014-TIOL-1333-HC-
repeated. Compare this ancient exhortation in the time- MUM-ST, the appellant was a Singapore-based compa-
less Arthashatra with the modern state practice of fund- ny and it filed a refund claim for Service tax of Rupees

TAXATION
52.54 Crores before the assistant commissioner of service ultimately will be a landmark in the refund jurisprudence.
tax on the ground that their collecting agent in India had
wrongly paid the tax on services provided to them. The Self-adjustment of Service Tax
assistant commissioner of service tax rejected the claim The Service tax Rules have a unique provision not seen
on the basis that the claimant was located outside India in any other Indirect tax system in the country. The
and hence the refund provisions did not apply to them. mechanism avoids the hassles of approaching the tax de-
However, the Bombay High Court came to the rescue of partment with a formal claim for refund which is usually
the claimant by setting aside the plain rejection order and not easy to get. Litigation further up the chain will be
remanding the case, by observing: required. Hence to avoid possible belated refund through
3. After hearing both sides on the limited point as to the formal process, the Rules provide for virtual self-re-
'whether the communication could be termed as an or- fund by means of self-adjustment by the taxpayer of ex-
der within the meaning of the Act', and finding that the cess service tax paid by him which was not on account
exercise contemplated by law is quasi judicial in nature, of reasons of taxability, exemption, classification, valuation
we are of the opinion that such communication cannot or interpretation of law etc.The excess tax could be used
be sustained. In the given facts and circumstances the to adjust against the tax liability arising for the ensuing tax
Competent Authority was obliged to hear the petitioner period. The Service tax department sought to deny the
and consider its claim on its own merits and in accord- self-adjustment on the ground that only assessees with
ance with law. Thereafter it was expected that the Com- centralized registration would have difficulties in estimat-
petent Authority should pass a reasoned order and duly ing income receipts and would end up paying excess tax
communicate it to the petitioner. and that only such assessees alone could be permitted to
4. It is such an exercise that is contemplated in the undertake self-adjustment. In the case of General Man-
given facts and circumstances. Since we have found that ager (CMTS) Vs CCE, CHANDIGARH -2014-TIOL-
the same has not been undertaken, the communication 1422-CESTAT-DEL , the Tribunal observed tellingly:
at "Annexure C" cannot be sustained. It is accordingly ....There is no condition in Rule 6(4A) read with
quashed and set aside. Rule 6(4B) providing that for availing of the adjustment
It will be interesting to watch the case unfold not only facility, the assessee must have opted for centralized regis-
because the amount under claim is huge enough but also tration under Rule 4(2). Moreover when an assessee dur-
due to the question of law involved in the case which is ing certain months, for reasons other than interpretation
whether a non-resident company/person can file a claim of law, taxability, classification, valuation or applicability
of refund if it has incurred the service tax on its con- of exemption, has paid service tax in excess of his actual
sumption of services provided from India. For now, the tax liability, the Government cannot retain the excess tax
High Court has passed an order entitling the claimant to paid by the assessee by refusing its adjustment against his
the due process of law and the developments in the case tax liability during other months and refusing adjustment
would be worth watching.The case when it gets decided of such excess tax payment during a month against tax
liability during other months and appropriation and re-
tention of the same would amount to collection of tax
WORKS LIKE THE ARTHASHASTRA without the authority of law which is contrary for the
provisions of Art 265 of the Constitution of India. As
HOLD THE POTENTIAL FOR held by the Apex Court in case of Ispat Industries Ltd.
vs. CC, Mumbai reported in 2006 (202) ELT 561 (SC)
SOLVING MANY OF THE ILLS THAT = 2006-TIOL-127-SC-CUS (para 26 to 29) whenever
there is conflict between a norm in a higher layer in the
TAX ADMINISTRATIONS ARE hierarchy of the laws in the legal system of the country
CONFRONTING WITHOUT MUCH as a norm in a lower layer in the hierarchy, the norm in
the higher layer in the hierarchy will prevail.Therefore, if
SUCCESS excess payment of tax in a month is not on account of
reasons involving interpretation of law, taxability, classifi-
cation, valuation or applicability of exemption notifica-
tion and is purely on account of inability of the assessee

to exactly determine the total amount collected during of India 2014 TIOL-1304-HC-DEL-ST has held
the month against the bills raised, as a result of which he that the Service tax Department lacks jurisdiction to
had determined his tax liability or estimation basis, the undertake audit other than the one contemplated under
excess amount of tax paid during the month can be ad- section 72A of the Finance Act 1994 and that the Rule
justed against his tax liability during other months and in 5A(2) of Service tax Rules 1994 providing for a routine
this regard, there cannot be any monetary limit. and general audit of the assessees is ultravires of the Act. It
8. In view of the above discussion, the impugned order may be noted that the Audit envisaged under section 72A
is not correct.The same is set aside.The appeal is allowed is a special audit which can be resorted to by an order
of the commissioner under special circumstances only.
Trade incentive: whether liable to service tax? Further, the audit can only be got done through profes-
Merchants, Dealers and Agents earn incentives and bo- sional accountants, viz., CMA/CA. The Court held that
nuses for their performance which exceed targets and are the Rules cannot exceed the scope of policy contained
appreciated by their principals. The Service tax depart- in the Act. The judgment will have an impact in cen-
ment tries to tax such incentives by holding the earnings tral excise arena as well. The development is good news
as part of the assessable value of services performed. The for CMAs who can now hope to land audit assignments
far-fetched notions of the department were put paid by from the CBEC.The hitch is that the special audit under
the Tribunal in the case of M/s Oswal Cable Products the tax laws cannot be resorted to on a substantial scale
Vs CCE - 2014-TIOL-1409-CESTAT-DEL, when the like a general audit and the number of such audits will
Tribunal approvingly cited the ratio reached in an earli- necessarily remain limited under administrative discre-
er case of CCE, Chandigarh Vs Facinate Advertising & tion of the CBEC. However, the time has come for the
Maarketing 2013 (31) STR 77 (Tri.-Del): CBEC to formulate a legally mandated scheme for the
6. I find that the Tribunal in the case of CCE, Chan- tax audit of large central excise and service tax assessees
digarh Vs. Facinate Advertising & Maarketing 2013 (31) (paying, say, more than Rupees one Crore) and empower
STR 77 (Tri.-Del). has held that the incentive received professional CMAs to conduct such tax audits and issue
for appreciable performance cannot be held to be a value their reports. The field officers of the CBEC who are
of the services provided and as such no tax can be levied now spared from fruitless routine audits may be produc-
on the same. For better appreciation I reproduce the rel- tively deployed for more value-added work such as study,
evant paragraph of the said decision:- scrutiny and analysis of tax returns, ACES-related com-
"4. Incentive is a receipt for appreciation of perfor- pliance and other information returns received as well as
mance of services provided. How such forms part of in intelligence-based enforcement.
taxable service remained unexplained. We are unable to
find how the revenue shall succeed saying that incen- Conclusion
tive shall be brought to tax when such incentive whether The ancient wisdom of works like the Arthashastra holds
shall be payable was not known to the respondent while potential for solving many of the ills that tax administra-
providing service. Therefore, the dispute on that count is tions are confronting without much success.As the saying
resolved against the revenue." goes, those who forget history will be compelled to re-
By following the said decision I set aside the confir- peat it. Tax collection has been an age-old sovereign task
mation of demand of duty of Rs. 1,01,218/- along with and is a tool to fulfil revenue and non-revenue objectives
interest and penalty of identical amount. alike.The task of tax administration has never been a walk
Despite the ratio of these consistent caselaws and the in the park. The tax departments generally look to the
exemption contained in the negative list vide section 66D West for even rudimentary training, whereas time-tested
of the Finance Act 1994 regarding the activity of trading wisdom available in good measure within our own trea-
of goods, the service tax department on the ground con- tises that have survived the ravages of time is treated with
tinues to be engaged in fruitless litigation on this issue. aversion if not derision.There is no use taking pride that
we are an ancient and sustaining civilization if we are not
No routine, general audit of service tax assessees willing to cast our eyes on the timeless knowledge lying
In a stunning verdict that would warm the hearts of the unheralded in our hoary treatises.
suffering auditees among the service tax payers the Delhi
High Court in the case of Travelite India Vs Union ravinpranaa@gmail.com

TAXATION
FINANCE (NO.2) ACT 2014

How do Indirect Taxes fare? tute acceptable assessable value. This case was
Presenting the tax proposals on 10th July 2014 discussed by the present authors in the issue
before the Parliament, the Finance Minister of Management Accountant in January 2013.
referred to the Revenue Collection Targets There was expectation that amendments
for Direct and Indirect taxes set by his pre- would be made to the Central Excise Act in
decessor as ambitious. Still, he proposed to the Budget 2014 to get over the adverse ef-
retain these targets and hoped to achieve the fects of the Fiat judgement. The expectation
TCA Ramanujam same. In the field of Direct taxes, he chose to was high in the light of Notices being sent by
Chief Commissioner
of Income Tax (retd.),
give away a sum of Rs.22,200 crores by way the Central Excise department by companies
Advocate High Court, of relief to taxpayers. Reliefs were also an- selling vehicles at a discount.
Madras nounced with regard to customs duty. When The Budget now lays down that if a com-
it came to excise duties, the Finance Minister pany sells its product at less than the cost of
chose to mobilize resources by raising spe- production, including profit, and if no ad-
cific excise duties on cigarettes from 11% to ditional consideration flows to it from the
72%. Duties were also raised on Pan Masala buyer, then the transaction value will be the
to 55% and unmanufactured tobacco to 70%. basis for the excise valuation. The Notifica-
He claimed that these are healthy measures tion clarifies that where price is not the sole
and hoped everyone will welcome them from consideration for sale and sale is effected at a
the point of view of human and fiscal health. price less than manufacturing costs, the value
TCA Sangeetha Clean Energy Cess was raised from Rs.50 per of the goods shall be taken at the same val-
Masters in Law ton to Rs.100/- per ton. Tobacco and liquor ue if no additional consideration is flowing
duties are known as Sin Taxes. Year after year directly or indirectly from the buyer to the
tax rates go up in respect of these products. company. This clarification does not help at
The question arises whether such taxes can all.
be confiscatory. The Supreme Court had laid down that
market penetration by way of predatory pric-
The Case of Fiat India (P) Limited 2012 ing will constitute additional consideration.
(283) E.I.T 161 (SC) The Notification and the Rules under the
The Supreme Court handed down a land Central Excise Act do not provide a clear
mark ruling in the case of Fiat India Limited picture. The amendment applies only in cas-
in 2012. The company was selling the Cars es where no additional consideration flows.
below the cost price. The Central Excise de- The amendment of valuation rules will have
partment declined to accept such price for to proceed further in order to meet with the
the purpose of quantification of the assessa- representations made by the manufacturers.
ble value under Section 4 of the Central Ex- At a time when accent is on manufacture, it
cise Act. The company pleaded that the sale is necessary that harsh interpretations of the
was made at below the cost price so as to Rule with regard to discounts offered to pen-
penetrate the market which was competitive etrate the market should be avoided.
by selling below cost. The Supreme Court
observed that the sale price in this case did Service Tax
not reflect the true value of the goods. The Amendment to the Service Tax law increases
Court Ruled that sale below the cost to push the rate of interests on delayed payment of
the product into the market cannot consti- service tax to the extent of 30% per annum if

the delay extends beyond one year. This is quite harsh. the input or input service invoices. This is a new inno-
This will be in addition to the penal provisions under vation. Hitherto, there has never been any time limit
the law. The income tax law does not levy interest at prescribed for availing CENVAT credit. The Supreme
30%. Court had recognized this right as being substantive
and indefeasible. The new restriction of 6 months ap-
Mandatory Pre-deposit pears unreasonable. It should be noted that service tax
Amendments made by the Finance Act brought in authorities are entitled to adjudicate tax short falls and
new provisions in order to direct pre-deposits of 7.5% demands for the past 5 years.
of the demand of duty or penalty in all cases of first Service Tax base is now being broadened by the
appeal under the Central Excise Act. In respect of sec- proposed to levy tax on sale of space/time in online
ond Appeals, the pre-deposit will be 10% of the duty and out-of-home media and provision of radio cab
or penalty. These provisions apply for Central Ex- services which were hitherto in the negative list of
cise, Customs and Service Tax demands. No power is services.
rested in the Appellate Authorities to stay recovery of
disputed demands till the disposal of the appeal. The Conclusion
pre-deposit of 7.5% of the disputed demand is a con- The cut in duties of several finished products will
dition precedent for hearing of the appeal. The only bring cheer to a large number of households. We can
relief granted is that the pre deposit shall not exceed expect prices of Refrigerators, Laptops, Tablets, Led-
Rs.10 crore for each individual appellant. lights, Lamps, LCD and LED TVs, Cathode Ray TVs,
The amended Section has done away with the discre- Mobile Phones, Washing Machines, RO-based Water
tion to grant waiver of pre-deposit vested in the appellate Purifiers and Ovens to costs less. The prices of Soaps
authorities. The Appellate Authority has no discretion to and foot ware, Precious and Semi Precious Stones and
stay the demand. This is an important change brought Smart Card will all be brought down.
about in the law which is not alluded to in the budget Collections from Indirect Taxes will be much less
speech of the Finance Minister. Thank God, this pro- than the collections from Direct taxes. This is as it
vision is not prevalent under the Income Tax Act. The should be. It is well known that Indirect taxes are
amendment can lead to unlimited harassment and abuse regressive in nature.
of provisions. The Finance Minister has also held out the hope
that the Goods and Services Tax Bill will be enacted
CENVAT Credit into an Act in this fiscal year. This should send cheer
The Finance Act has introduced restrictions for avail- allround.
ing CENVAT credit. It is now laid down that it
should be availed of within 6 months from the date of ramanuja@vsnl.com
Attention please Members in Practice

Members in practice can now view their validity of Certificate of Practice by following the proce-
dure as laid down below:
1. go to the home page of the Institute website, ie www.icmai.in
2. go to the members' log in on the top of the Home page by using your membership number as
'User ID' and a combination of your DoB (in dd-mm-year format) and Membership number as
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3. immediately you will be led to the 'Membership Management System' page
4. go to the 'Certificate of Practice' menu on that page
5. view the validity of 'Certificate of Practice' which is the last item on that menu

TAXATION
TAX TITBITS
S. Rajaratnam
Advocate and
Tax Consultant,
Chennai
Consortium need not always be treated as AOP
E xecution of a contract by a consortium of different

enterprises is becoming more common in the case
of large business contracts. An inference that such a
Engineering and Ship Building Co. Ltd. [2003] 259
ITR 248 (Del). The Karnataka High Court in VDO
Tachometer Werke, West Germany v. CIT [1979] 117
consortium should ordinarily be treated as an Associa- ITR 804 (Karn) and the Authority for Advance Ruling
tion of Persons (AOP) follows. But where such con- in Rotem Co. In re [2005] 279 ITR 165 (AAR) have
sortium is for a limited purpose of a particular contract also taken similar view. Where parties join to bid for a
with independent responsibility and without any risk tender or to take a contract, and divide the contracted
sharing, there is no AOP as was decided by the Delhi work among themselves, carrying out their respective
High Court in Linde AG. Linde Engineering Division divided shares at their own risk with no risk sharing,
v. Dy.DIT [2014] 365 ITR 1 (Del) and CIT v. Mitsui the inference of AOP does not necessarily follow.
Carbon credits Are they exempt?
A n offshoot of green revolution at the instance of in-

ternational initiative known as Kyoto Protocol is the
green credits available for those, who adopt productive
question whether the provision could have application.
In the larger interest of the economy, the proceedings
should have been made exempt under the law. But then,
techniques to reduce carbon emission and thereby pol- tax laws often travel in reverse gear as for example,
lution. Such credits are transferable. Are the proceeds the Finance (No.2) Act, 2014 passed by both the Houses
tax exempt? It was decided by the High Court in CIT post-haste disallows even the amounts spent on corpo-
v. My Home Power Ltd. [2014] 365 ITR 82 (AP), that it rate social responsibility, notwithstanding the fact that it
is a capital receipt and that there being no cost for the has to be statutorily incurred. In these circumstances,
same, it would not be liable to tax. the provision for disallowance is retrograde. It should
Since the carbon credit is earned in the course of busi- be possible to align social objectives with tax measures.
ness, the inference that it is a capital receipt as against Prior to this provision also, the Madras High Court
the contention of revenue, is not free from doubt. The in CIT v. Madras Refineries Ltd. (2004) 266 ITR 170
further inference, that there is no liability for tax on (Mad) had held as under:
capital gains, because no cost is incurred, is also doubtful, The concept of business is not static. It has evolved
as extra cost is incurred for earning the credit and is al- over a period of time to include within its fold the
lowed in computation of taxable income.The inference, concrete expression of care and concern for the society
that in cases where there is no cost, capital gains will at large and the people of the locality in which the
not be taxable, is also not free from doubt because sec- business is located in particular. Being known as a good
tion 55(2)(a)(ii) provides that in cases of assets specified corporate citizen brings goodwill of the local commu-
therein, the cost should be taken as nil raising a further nity, as also with the regulatory agencies and the society

at large, thereby creating an atmosphere in which the and remitted back to the High Court in CIT v. Madras
business can succeed in a greater measure with the aid Refineries Ltd. [2009] 313 ITR 334 (SC) for a finding
of such goodwill. Monies spent for bringing drinking on the nexus as between such donations and the busi-
water as also for establishing or improving the school ness. However, the law in such cases, where the benefit
meant for the residents of the locality in which the to educational institutions and for other social objectives
business is situated cannot be regarded as being whol- need not justify disallowance.
ly outside the ambit of the business concerns of the Expenditure for installation of traffic signals for roads
assessee, especially where the undertaking owned by leading to assessees business premises was held deduct-
the assessee is one which is to some extent a polluting ible as a payment for discharge of assessees corporate
industry. social responsibility besides facilitating the employees,
Such donations were found to be admissible in CIT v. could also be treated as wholly and exclusively for pur-
Bharat Heavy Electricals Ltd. [2013] 352 ITR 88 (Del- poses of business as decided in CIT v. Infosys Technolo-
hi) as it had to get local support, so that it would be a gies Ltd. [2014] 360 ITR 714 (Karn).
welfare measure, relying upon Madras Refineries Ltd.s It should be possible to align income tax law with
case, which has been set aside by the Supreme Court social objectives.
Charities sponsored by religious communities need not lose exemption
M any Non-Government Organisations (NGOs) are

inspired by religious and caste institutions in In-
dia rendering yeomen service supplementing the State
lier cases, but in fact has reversed the narrower view ear-
lier taken on mere language in the trust deeds ignoring
the public benefit. The present decision of the Supreme
functions. The trust deeds often invoke the respective Court categorically provides that the objects of spreading
gods and religious texts, but their activities are genuinely religious awareness by educating tenets of a particular
running educational and medical institutions, where the religion should not be understood as formed for the
beneficiaries are substantially from other communities. It benefit of a particular religious community. There may
is really hard on them, if they are denied exemptions. A be some blending of religion and charity, but where ac-
narrow view was prompted by the decision of the Su- tivities are predominantly charitable in character, there
preme Court in Ahmedabad Rana Caste Association v. is no reason why the benefit of exemption should not
CIT [1971] 82 ITR 704(SC). This was followed in CIT be availed by them as held by the Supreme Court in this
v. Palghat Shadi Mahal Trust [2002] 254 ITR 212 (SC) case. When purely religious trusts are exempt, there is no
and State of Kerala v. M.P. Shanti Verma Jain [1998] 231 reason why a mixed trust should altogether lose exemp-
ITR 787 (SC). But there is a broader approach by the tion. At any rate, these trusts which are predominantly
Supreme Court in CIT v. Dawoodi Bohra Jamat [2014] religious in character have to lose the benefit of approval
364 ITR 31 (SC), which no doubt, distinguishes the ear- for tax exemption for the donors under section 80G.
Lumpsum payment for long term lease may not be deductible
L ump sum payment under a lease agreement for 39

years with the option to renewal of lease was found
admissible by the Supreme Court in CIT v. Madras Auto
The expenditure was, therefore, held to be capital in na-
ture and not deductible. The decision in R.K. Palshikar
(HUF) v. CIT [1988] 172 ITR 311 (SC) was followed. In
Service (P.) Ltd. [1998] 233 ITR 468 (SC).This decision this context, it may be noticed that the decision of the
was followed by the Tribunal in a case of lease for 80 years Bombay High Court in CIT v. Khimline Pumps Ltd.
with right of renewal in the view that the duration of [2002] 258 ITR 459 (Bom) had also distinguished the
lease does not determine the character of the expenditure decision of the Supreme Court in Madras Auto Service
and allowed the deduction. The High Court in CIT v. (P) Ltd.s case (supra). It would, therefore, be wrong to
Rane Brake Linings Ltd. [2014] 365 ITR 401 (Mad), assume that the earlier decision of the Supreme Court is
while reversing this decision of the Tribunal held that the of universal application.
assignment deed did not have anything to suggest rever-
sion of the property or any other rights to the assignor. s.rajaratnam@vsnl.com

TAXATION
TAXATION ISSUES IN
TELECOM SECTOR
Tax litigations with complete disregard to the explicit
provisions of Section 194H as given in the Income Tax Act
is subjecting telecom operators to undue tax demands year
after year, resulting in huge litigation costs
CMA Ashok
Chawla
Head of Tax Deputy
Director
Sistema Shyam
Teleservices Limited
Gurgaon

T he telecom industry in India is one of the fast-
est-growing in the world. The telecom industry
in India has experienced exponential growth
over the past few years and has been a major contributor
to economic growth. This is largely on account of liber-
tion 194H w. e. f. 01 June 2001. This Section provides
that any person, not being an individual or a Hindu Un-
divided family, who is responsible for paying, on or after
01 June 2001, to a resident any income by way of com-
mission (Not being the insurance commission referred to
alization opening up the sector and reforms introduced in Section 194D) or brokerage, shall at the time of credit
by the government. With the entry of private players, of such income to the account of that payee or at the
competition in the last decade has served as the primary time of payment of such income in cash or by the issue of
facilitator of this astonishing growth. a cheque or draft or any other mode, whichever is earlier,
Telecommunication has played a significant role to deduct income tax thereon at the rate of ten2 percent
narrow down the rural-urban digital divide to some ex- provided the aggregate of the amount of such income
tent supported by the socioeconomic development of credited or paid or likely to be paid during the financial
India. This growth of telecom sector has further assisted year to the account exceed [Rupee five thousand]3
the transparency of governance with the introduction of Explanation to this section provides that where any in-
e-governance in India. come is credited to any account, whether called suspense
However, even with these positive regulatory moves account or by any other name, in the books of accounts
and initiatives by the government to make the Telecom of the person liable to pay such income, such crediting
Sector the 'backbone' of this countrys infrastructure, stub- shall be deemed to be credit of such income to the ac-
bornly the complexities in Indian Income tax regulations count of the payee and the provisions of this section shall
which are adversely impacting the investor sentiments apply accordingly.
and which are constantly have been subject matter of the
litigation between tax payers and the revenue authori- Facts
ties. One of the section of Income Tax Act among those All the telecom operators usually have entered into
complex sections is Section 194H on which divergent agreement with distributors for providing talk time / data
views have been expressed at different levels by the tax services to their end consumers for distribution of talk
authorities, tribunals and courts. Hence, the applicability time in advance which is available in form of recharge
of Section 194H1 with respect to the TDS on discounts vouchers (RCVs)/e-top up available in different denom-
being treated as Commission by the tax authorities to inations. The distributors obtain the RCVs at a discount
distributors in case of distribution of e-recharge and pa- over the Maximum Retail Price (MRP) from the tele-
per vouchers by telecom operators, has very antagonistic com operators and thereafter make the same available to
impact on the industry which is one of the major tax the retailers/ prepaid subscribers.
(Direct as well as indirect tax) payer industry for the ex- The transaction between the Appellant and the distrib-
chequer in India. utors in relation to the sale of talk time is pictorially de-
picted and step wise explained here-below.
Legal history The retailer sells such talk time to the eligible subscrib-
Section 194H was introduced by the Finance (No.2) Act,
1991, w. e. f. 1-10-1991 and later on amended in 1992 1
Reintroduced by the Finance Act, 2001, w. e. f. 1-6-2001.
2
Substituted for Five by the Finance Act, 2007 w. e. f. 1-6-2007.
and was omitted by Finance Act 1999 w. e. f. 1-4-2000. 3
Substituted for two thousand five hundred rupees by the Finance Act, 2010 w.
However, Finance Act, 2001 has reintroduced this Sec- e. f. 1-7-2010.
Telecom service provider Distributor Retailer Subscriber

TAXATION
ers who can then avail the telecom services provided by or at the time of payment of such income, whichever is
the telecom operator. The money collected by the dis- earlier, either of which are not present in the facts of the
tributors from the retailers or by the retailers from the case.
subscribers is on their own account and not on behalf
of the telecom operator. The telecom operator does not Department views / judicial pronouncements /recent
even know the end price at which the talk time is made amendments in law
available to the subscriber. The view taken by the department that telecom oper-
ators not doing withholding of tax compliance for the
Issue discounts offered to distributors being considered as
Income tax authorities have taken a view based on the commission, are assesee in default if the tax is paid by
facts discussed in the preceding para that telecom oper- the deductee.
ators are giving commission to their distributors by pro- However, this view of the department is framed with
viding the commission, being the difference between the complete disregard of the fact that the distributors have
MRP and Distributor Price and therefore are liable to discharged their tax liability by way of advance tax and
withhold taxes on this trading margin. In the absence of self-assessment tax in respect of the income accruing to
this withholding tax compliance by the telecom opera- them from the distribution of talk time.
tors, tax authorities are issuing notices on telecom oper- When the tax liability has already been discharged by
ators year after year under Section 201 and Section 201 the recipient of income direct, it is a settled proposition
(1A) of the income tax Act, 1961. that no demand can be raised on the Assessee in the pres-
This view of the department has been deliberated ent case and that the Assessee cannot be treated as assessee
inversely at different levels by department, tribunal and in default.
courts.The view point taken by the tax authorities in this
matter is not correct based on the following premises: The following judicial precedents interpreting the Act
(a) Telecom operators are not responsible for paying any and provisions of the Act, support this position of law:
income by way of commission to the Distributors in the
context of pre-paid talk time; Hindustan Coca Cola Beverage
(b) There is no credit affected in the books of account (P) Ltd. vs CIT (SC)
of the telecom operator nor any payment made (actual or .The Tribunal upon rehearing the appeal held that though
constructive) of any income by way of commission to the the Assessee-assessee was rightly held to be an 'assessee in de-
distributors; fault', there could be no recovery of the tax alleged to be in default
(c) The relationship between the Telecom operator and once again from the Assessee considering that Pradeep Oil Cor-
the Distributors is that of a Principal and Principal and in poration had already paid taxes on the amount received from the
absence of an agency element, the provisions of section Assessee. It is required to note that the department conceded be-
194H of the Act cannot be invoked; fore the Tribunal that the recovery could not once again be made
(d) The potential trading margin which the distributors from the tax deductor where the payee included the income on
could have realized on making sales to retailers/ subscrib- which tax was alleged to have been short deducted in its taxable
ers cannot be described as commission; income and paid taxes thereon. There is no dispute whatsoever
(e) In any case, the margin if any retained by the Distrib- that Pradeep Oil Corporation had already paid the taxes due
utor while further selling the prepaid talk time to retailers on its income received from the Assessee and had received refund
or subscribers is not known to the telecom operators; from the tax department. The Tribunal came to the right con-
(f) In absence of specific provision and having regard clusion that the tax once again could not be recovered from
to the provisions of section 194G in the Act which was the Assessee (deductor-assessee) since the tax has already
brought into the statute together with section 194H, been paid by the recipient of income..
there can be no withholding tax obligation on the Tele- Central Board of Direct Taxes (CBDT) has acknowl-
com operator. edged the above position of law and accordingly issued
(g) Authorities are not appreciating that the tax deduc- the underneath circular.
tion provisions under chapter XVII B and section 194H
of the Act in particular contemplate deduction of tax at Circular No. 8/2009, Dated: November 24, 2009
the time of credit of income to the account of the payee . Considering the facts and circumstances of the class of cases

of TPAs and insurance companies, the Board has decided that We note that ITAT has followed the decision of this
no proceedings u/s 201 may be initiated after the expiry of six court in CIT vs. Adidas Marketing P. Ltd. in which decision
years from the end of financial year in which such payment have this court held that the assessee who was obliged to but had
been made without deducting tax at source etc by the TPAs.The not deducted tax at source, would not have asked to pay
Board is also of the view that tax demand arising out of Section the same where the deductee had paid tax on the amount
201 (1) in situations arising above, may not be enforced if the received by him as his income...
deductor (TPA) satisfies the officer in charge of TDS that the
relevant taxes have been paid by the deductee assessee (hospi- ACIT v British Airways (2005) (95 TTJ 980) (Del)
tals etc.). A certificate from the auditor of the deductee assessee In the aforesaid case, the following observation was
stating that the tax and interest due from deductee assessee has made:
been paid for the assessment year concerned would be sufficient ..Section 191 provides that where tax has not been de-
compliance for the above purpose. However, this will not alter the ducted at source, income-tax shall be payable by the assessee di-
liability to charge interest under Section 201 (1A) of the Income rect. Till the insertion of the Explanation in section 191, the
Tax Act till payment of taxes by the deductee assessee or liability Department could not proceed to recover short deduction of tax
for penalty under Section 271C of the Income Tax Act as the from the payer of the income. However, after the insertion of
case may be.. the Explanation to section 191, this hurdle has been removed
It is well settled legal position that CBDT circulars are whereby the Department can proceed to recover short deduction
binding on the tax authorities and thus it is thus most of tax from the payer. However, as per the said Explanation, only
respectfully prayed on the basis of the above submissions, that part of the tax can be recovered from the payer which has not
the following:- been paid by the assessee direct. In other words, if the payer
That from a factual and legal standpoint, there is no has not deducted any tax or has made short deduction of
obligation on the telecom operator to withhold taxes tax, but the deductee has paid the entire tax, then no recov-
on the transaction with the distributors for pre-paid ery can be made from the deductor..
talk time.
That in any case, the telecom operator cannot be treat- M/s Mahindra & Mahindra vs
ed as an assessee in default for the purpose of recovery DCIT, (2009-TIOL-255-ITAT-MUM-SB).
of the taxes since the distributors have discharged their The Mumbai Special Bench analyzing the newly sub-
tax liability on their own on the income earned by stituted Explanation to Section 191 read with Section
them from the distribution of talk time. 201(1) of the Act and relying inter-alia on the decision
of the Honble Supreme Court in the case of Hindustan
CIT Vs Majestic Hotel (155 Taxman 447): Coca Cola Beverage P Ltd v CIT (supra) held as under :
The Honble Delhi High Court in the case observed as Thus even if the sum is chargeable to tax in the
under: hands of the recipient and the provisions for deduction
..If tax has been paid by the deductee as is the posi- of tax at source also exists on such payment, still the
tion in the instant case, there is no question of the assessee payer cannot be treated as assessee in default if the payee
paying the same over again either in full or part.Tax could has paid the due tax. It is the dilution of the provisions of
be recovered from the assessee only once. If that be so, interest section 201(1). Logically, also we find it a correct proposition
must stop accruing, the moment, the amount of tax is paid to the for the obvious reason that the purpose of treating the person
Revenue. It is immaterial whether the tax is paid by the deductee responsible failing in his duty as assessee in default is to en-
or the assessee who had made the deduction.What is significant sure that the tax is adequately recovered. But if the payee
is that the interest which is compensatory in character is paid to has himself paid the tax, then there cannot be any point
the Revenue till the date the amount of tax is actually deposited. in again treating the payer as assessee in default and
That is precisely what has been done in the instant case. The repeatedly recovering the tax.
question framed earlier is answered accordingly... In the instant case, since the distributors have paid tax-
es on income earned by them from distribution of pre-
CIT Vs Trans Bharat Aviation (P) Ltd paid talk time, no further taxes can be collected from the
(225 CTR 415) Assessee in respect of distribution income of such dis-
The Honble Delhi Court in the case of observed as un- tributors. Recently, the Calcutta High Court has also
der: upheld this proposition in a case where they otherwise

TAXATION
held, based on the facts of the said case, that the telecom the telecom operator for the reasons not under the
operator was under an obligation to withhold taxes on control of telecom operator to establish that tax has
the transaction with the distributor. The observations of duly been paid by the deductee and income is duly
the Honble Court are reproduced below: reported in his tax returns, tax authorities are subject-
ing telecom operator to undue tax demands year after
Bharti Cellular Limited v. ACIT (Cal. HC) year for such amounts.
However, we direct the Assessing Officer to examine Here the most agonizing fact is that tax authorities im-
whether all the franchisees whose Income Tax has not mediately after issuing notices on telecom operators, start
been deducted at source by the assessee has already been pressuring operator to deposit this undue tax demand in
assessed entire tax payable is recovered in regular basis a short span of time as it appeases the tax authorities, even
or not. If it is not by this time then this action will be if the operators going in for a compulsory litigation route
taken, and if it is already realised and recovered then for this undue tax demand imposed on them. Collection
the principal amount of taxes to the extent of deduct- of tax (Undue tax) from the operators through this mode,
ible at source shall not be recovered from this assessee whereby tax authorities contributing to their annual rev-
however, interest payable under the law has to be lev- enue collection targets, is not at all a sign of universal
ied. practice of tax authorities.
Section 191(1) Impact on the industry

As per section 191 of Act, in the case of income in It is because of this undue tax litigation, where authorities
respect of which provision is not made under this are relying on their autarchic approach with complete
chapter for deducting income tax at the time of pay- disregard to the explicit provisions of Section 194H as
ment, and in any case where income tax has not been given in the Income Tax Act, tax payers (telecom oper-
deducted in accordance with the provisions of this ators) being subjected to undue tax demands year after
chapter, the income tax shall be payable by the assesee year for not doing the withholding of tax as envisioned
direct. by the tax authorities. This is resulting in huge litigation
Further, a new proviso has also been inserted by Fi- cost to all the telecom operators and undesirable block-
nance Act 2012 to Section 201 (1) of the Income Tax Act, ing of the working capital to the extent these tax de-
1961 as under: mands being deposited by the telecom operators against
"Provided that any person, including the principal of- the notices issued by the tax authorities. This litigation
ficer of a company, who fails to deduct the whole or any further adding to pending numbers of undue multiple
part of the tax in accordance with the provisions of this cases for different operators at different levels of assessing
Chapter on the sum paid to a resident or on the sum / quasi-judicial / judicial authorities, which themselves
credited to the account of a resident shall not be deemed have no substance in it.
to be an assessee in default in respect of such tax if such Nevertheless, the government did announce some sig-
resident nificant initiatives - like the much-awaited policy on
(i) Has furnished his return of income under section 139; mergers and acquisitions and permitted 100 per cent for-
(ii) Has taken into account such sum for computing in- eign investment in the sector - which will drive Indian
come in such return of income; and telecom in the years to come, what analysts feel, but with
(iii) Has paid the tax due on the income declared by him the kind of tax litigation, which we feel is being inten-
in such return of income, and the person furnishes a cer- tionally imposed on all the telecom operators even when
tificate to this effect from an accountant in such form as facts and legal provisions are crystal clear would not allow
may be prescribed. the entrepreneur to reap the benefit of the efforts done
However, this new proviso is of little help to the by the government on the regulatory front. For telecom
telecom operators on ground reality for the reason sector to be a strong service sector in India, constructive
that it is sometime practically not feasible for dis- regulatory environment and confident tax framework
tributor to provide such accountant certificate to the should go hand in hand to maintain the industry confi-
telecom operator for cost and other reasons well ac- dence and rise in foreign inward investment in India.
knowledged to the distributors. Where, this account-
ant certificates are not provided for by distributors to ashokkchawla70@gmail.com

BANKING
TRANSPARENCY IN INDIAN BANKS

CONSIDERING INFORMATION
ON BANK WEBSITES
A sound and well-managed bank should, in theory, benefit
when it provides comprehensive, accurate, relevant and timely
information on its financial condition and performance, and
ability to manage and control risks
CMA R P Gore
M R Pandit &
Company, Pune

T he Basel committee on banking supervision in
its report in September 1998 stressed the im-
portance of transparency as Key element of an
efficiently supervised, safe and sound banking system. On
the other hand lack of transparency tends to negatively
on amounts invested.
A sound and well-managed bank should, in theory,
benefit when it provides comprehensive, accurate, rele-
vant and timely information on its financial condition
and performance, and ability to manage and control risks.
distort risk perception in the market and increases the Such a bank should be able to access capital markets more
intrinsic fragility of individual banking institution apart efficiently than similar institutions that do not provide
from bearing seeds of systematic disturbances. adequate disclosures. As per Basel report, the information
The advisory group of Banking Regulation and su- should have characteristics, as given below, for effective
pervision reiterated in its report the importance of trans- transparency in banking environment (see table below).
parency. The group also considered the existing Indian The information can be given in printed materials /
circumstances / practices prevalent in banks (at that time), financial statements and other documents to media /
suggested weak areas and corrective steps. It tried to esti- public. (On yearly or Quarterly basis) After the cyber rev-
mate time frame for the corrective steps. olution, the banks have opened and operating their own
Not surprising, transparency was the first priority of sites and lot of authentic information is available on the
the RBI Governor, Dr Raghuram Rajan as discussed by given sites. (Possible, it may not have legal sanctity.) This
him in his first press conference after assuming office on information is readily available to public and would be
4th September 2013. surely helpful for transparency of the banks.
(Presently, RBI is languishing at a bottom place at say In the exercise given below the information on vari-
2 points and Swedens Riksbank on top with 14.5 points ous banks sites is collected and used to find whether it is
based on the scale of transparency based on parameters useful for the transparency of the banks and what are the
including some other than disclosures. The survey was actions required to make it useful.
done by Barry Eichengreen and Nergiz Dincer, pub- Before going to specific subject, let us discuss what are
lished by the Bank of Korea on transparency in Central the aspects peculiar of Indian Banking / Indian financial
Bank for the period 2007-2010.) environment.
After implementation of Basel III,(which is more 1) Ownership pattern: Taking consideration of owner-
stringent),there would have to be lot of infusion of capi- ship, Banks can be segregated into following categories.
tal into Indian Banking Industry as there might be capital Nationalised Banks (Public Sector Banks)
in-adequacy in many banks including some nationalised Private Banks.
banks. (Particularly, where there is capital erosion due to Scheduled Banks.
losses or NPAs) As Government may not be willing to Urban Co operative Banks.
take total burden on itself, there would have to be lot Co operative Banks and Rural Banks.
of money coming from the public by public subscrip- Out of the total banking activities, major activities
tion. Thus in those cases, the public faith/investors con- are controlled by the Nationalised Banks.The interest-
fidence will depend on the transparency in the banking ing point is that although all the nationalised banks are
system. The investors / creditors should be aware what owned and controlled by Government (or RBI) One
risk they are taking and how much would be the returns authority, they have diverse culture/working style/re-
Sr No Characteristics Details
1 Comprehensiveness The information should be complete for making meaningful evaluation of the bank by all the stake holders
2 Relevance and timeliness The information should be relevant for decision making and be available at the time of decision making
3 Reliability information should faithfully represent that which it purports to represent, complete in all respects (i.e., free
from material error or bias),
4 Comparability Banks should use consistent accounting policies and procedures from period to period, and uniform
measurement concepts and procedures for related items. The basis should be uniform and reported data
should be comparable
5 Materiality. Information is material if its omission or misstatement could change or influence the assessment or decision
of a user relying on that information. Paise are not material when figures goes into 100 Crores

BANKING
ports and reporting. 2. IDBI bank (Private Banks)

There is also common feature in all the nationalised 3. ICICI bank (Private Banks)
banks that as there is no ownership and no monitory 4. State Bank of India (largest bank)
incentive the bank officials and bank Directors are not 5. Union Bank of India. (one of the big nationalised bank)
having any personal interest in the results of the bank. 6.
United Bank of India. (NPA problem 2013-2014)
The banks do not depend much on the private finance/ (bank strong in eastern area)
share holding for their survival and due to strong un- 7. Canara bank (Bank stronger in southern region)
ions; the employees do not have threat of loss of the jobs. As per recommendations made by advisory group
The banks also have to shoulder burden of government (RBI) in say, 2000, which were to be implemented in
schemes/ loan advances waivers etc. a span of 3-4 years certain details were to be put on the
2. Number of Branches Considering banks all India lev- public domain. It should be noted that this period was
el, the bank branches figure reaches a staggering numbers prior to implementation of core banking and popular use
but they are concentrated in urban areas There are lot of of internet. Hence much stress was given on published/
villages / lot of rural India where the Banking system/ printed accounts and financial results as declared. Now
banking benefit has not reached. the financial details can be available in net. Those details
3. Illiteracy/computer awareness: - Sizable portion of our as required by Advisory Group should be easily available
population is illiterate and can not use bank services.The on the net.
younger and urban population is mostly computer savvy. However while going through the reports/ financial
The senior people , may be including Senior banking results of March 2014, pertaining to the above banks on/
staff is many times averse of using computers and its re- around 15th June, we may note the following anomalies;
lated applications. Uninterrupted power supply, Techni- 1. Every Bank has created its domain in a different fash-
cal know- how, software and hardware support are many ion / different places and in different form like Annual
time not available easily at all the places report, performance highlight, and performance analysis
4. Electronic payment:-The effect of the above point is (sometime revised also).Thus we have to take troubles to
on Electronic payment / the credit / debit card through find out same information although it is readily available.
payments which is on the smaller size and we have huge 2. Information given in different formats, period, orders
cash amounts moving around in our economy which is (sometimes current year -> previous year and vice versa.)
out of banking system. The unit of measurement may be Rs 1000 in one report
5. The RBI is playing duel role. It is owner / owners where as in other report of the same bank for the same
representative for nationalised bank and plays regulators period it may be in RS Lacs or Rs Crores .
role in banking sector. It is a government bank and thus 3. The materiality aspect is missing (sometimes we find
can claim limited freedom. the amounts in crores with details upto last paise). We
Considering, conditions prevalent the transparency can find in SBI financial statement that the figure of Mis-
be seen from 3 angles. cellaneous expenses is Rs 2756 Crores vis a vis the total
The Supervisory/Regulatory authority (RBI) operating expenses of Rs 13222 Crores (ie 21%).
The Banks 4. If SBI can put on net their financial figures, pertain-
The customers of the banks. ing to 31.3.2014, on 23rd May,2014, there should not
The flow of information has to be smooth from cus- be problems for any other banks to publish in the given
tomers to the bank, banks to RBI and flow of instruc- time. (There is not cut off point/ date for a banks to put
tions should be smooth from RBI to Banks and banks to the information on the net). It may be noted that Banks
customers. close their business on daily basis. There is core banking
However we find that customers are not forthcoming everywhere. For big branches, there is a concurrent audit
with the information to the banks with necessary clarity which is throughout the year.There is a quarterly closing
and truthfulness and banks may submit partial informa- of the accounts done religiously. Actually for other banks,
tion in the MIS to RBI this cut off date should be brought down to 30.04.2014.
Now for this working on the transparency of banks, we If bank needs more time for closing, it means that either
have taken the financial and other details available on net the provisions are not done on accounts in regular man-
(say on 15th June) as on March 2014 of following Banks. ner / quarterly manner meticulously as required or there
1. Axis Bank (Private Banks) is some window dressing. If NPA s are monitored on

A TRANSPARENT BANK SHOULD BE ABLE TO ACCESS
CAPITAL MARKETS MORE EFFICIENTLY THAN
SIMILAR INSTITUTIONS THAT DO NOT PROVIDE
ADEQUATE DISCLOSURES.
monthly basis, there would not be shocks at the year end. the steps taken for the correction and to ensure that such
mishap may not happen in future? Whether this point
Specific points or suggestions was raised by Internal auditors and statutory auditors?
1.The Board Members list is available on banks sites, but (There are chartered accountants on board of the bank)
no other details, qualification, experience and remunera- It may be possible that all these questions may have
tion package is available(UBI SBI have the details).Details been raised by RBI and answered by United Bank offi-
like qualifications, experience and pay package + incen- cials. But others do not know. Not only shareholders of
tive plus department he / she heading/ responsible for are United bank but the public has right to know it because
not available for senior managers. The budgets/ targets it is Nationalised bank and the public money is going
are not made public. What are the achievements against to be used as capital infusion / replacement of fund and
the budgets / targets- these are not made publics. hence the information about NPA and Restructured as-
2. Financial parameters, as required by RBI in RBI for- sets should have been put in public domain / knowledge
mat, were found. However its analysis part and commen- by giving the details in directors report (or statutory au-
tary/reasoning given by the Board of Directors were not ditors report- It is also clean report!)
found in maximum cases. It was noted by the Advisory 3.The parameters, like cost per branch, income per branch
Group that the Board and the officials being helm of the are not comparable from one quarter to other, one year
affairs should know better about the problems, existing to other. The factors considered for the parameters are
and forth coming than auditors and should give in the different banks are different. Employees include workers,
Directors report, not only what has happened but why staff and managers plus security if any. However these
It has happened and what are the steps taken. In United figures are given in different permutations and combi-
bank, after the Net NPA jumped from Rs 2964 crores to nations by different banks. There are no benchmarks /
Rs 7118 crores in one year 13-14 (jump of say 240%), standards developed for comparison. Whether employee
one would have expected detailed analysis / explana- cost should form 40 % of the operation cost or less or
tion as to why this happened and what corrective steps more, no indications. Employee cost per employee also
are taken in their Directors report-however except this varies from Rs 6 Lacs to Rs 10 lacs.per employee per year
point all the subjects under the sun are discussed!!! (In 4. In NPA classification, it seems that there is some bias
case of Cosmos bank the Board has given details in its in working. We note that for given Quarters, the least
reports on action taken against erring officials !!) NPA Figure is the 31st March Quarter for major Public
If we go by newspaper reports of Feb 14, the bank of- Sector Banks.We enclose herewith data for the two years
ficials were claiming that it was because of wrong classi- 12-13 and 13-14 where there is dip in graph in NPA
fication / mistake in standard asset and NPA due to soft- in the March. Either banks have made extra efforts to
ware package supplied by Infosis. Banks result is normally reduce NPA at the yearend or some recovery/ payment
summation of information gathered from all branches. is arranged so that NPA is pushed to next year. In private
Each branch is expected to monitor its NPA and is ac- banks this dip is not there. In each bank there is huge
countable / responsible for that. If there was mistake in amount lying on account of restructured loans and ad-
system, was it not pointed out by any branch? What are vances. These are potential NPA. The restructured assets

BANKING
of ICICI seems to be doubled where

as axis bank and united bank both
CAN WE HAVE A time./ whistle blowers. Thus bank
can get services of many experts free
have substantial amounts in restruc- CADRE OF SENIOR of cost!
tured asset. In the supporting sheet we have
The NPA might be on the lower BANK MANAGERS tried to compile and compare P and
side if at the time of sanctioning the L figures of various banks as above,
loan care is taken. May be professional FOR NATIONALISED and note some points which are odd:
assistance of Cost accountant should
be taken when industrial finance is
BANKS, THAT 1) Employee cost per employee
per year: Rs lacs There is wide var-
being considered for sanctioning.The IS, A POOL OF iation from Rs 5.65 to 10.15. May
data must be latest when big facili- be, there may be some error due
ty is sanctioned because for bigger MANAGERS ABOVE to fact that we have considered
company to survive have to have year end figures where as average
good and prompt MIS. It has to be SAY DY. GM LEVEL employee no. for given period may
need based finance instead of securi-
ty based (drawing limit basis) finance.
TO BE POOLED AND give accurate figure. It is intrigu-
ing to note that while the cost is
There has to be month to month USED FOR SENIOR lower for 2 private banks axis and
monitoring of the data supplied by icici (5.84 to 6.27) for IDBI the
the unit.The Cost accountants tech- POSITIONS AT ALL figures are on higher side ( from
nical expertise can also be used in 9.28 10.15)
stock audits and concurrent audits. THE NATIONALISED 2) Exp per branch : Private banks
5) One administrative point. It is
noted that after spending some 34
BANKS? have higher income and cost per
branches particularly idbi however
years in his service in various ca- we find that nationalised banks are
pacities in Bank of Maharashtra, Mr on lower expenses bracket united
Sanjay Arya was given a assignment being lowest
of executive director of United 3) Interest on balance with RBI,
Bank of India. Although all nation- shows increase as well as decrease
alised banks work under same um- banks. May be it is bound by privacy when compared with last years fig-
brella, each bank has its own cul- clause between itself and Banks as far ures. Should this balance and interest
ture, Formats, system and practices. as not published data but can surely on it should remain constant or it
It must have been uncomfortable compile published data on its own should be changing? In case of oth-
for him going from one bank to site. If all the banks figures are placed ers income side (d) there is huge
other. on one platform, it will be easy to difference Canara bank in the yr 12-
Can we have a cadre of senior bank COMPARE. It may be possible that 13 vis a vis 13-14. Is there a change
managers for nationalised banks, i.e. a all banks are not necessarily compa- of system? Accounting? Where as for
pool of managers above say Dy. GM rable, they may have different busi- all other banks there is increase in in-
level to be pooled and used for senior ness pattern, different capital struc- come but for icici there is reduction
positions at all the nationalised banks. ture, different cost pattern but it will in income
This will have two benefits. Manag- show that in the given conditions / 4) In case of expenses there was wide
ers would get accustomed to systems given circumstances what is the best movement/ not stable and could
and procedures of different banks, possible results, what the bank can set be analysed taking the expenses
would get equipped for directorial as a goal to achieve. breakup-whatever possible.
assignments.The differences in banks If data as above would be put on Thus understanding / comparing,
culture, systems and procedures may the RBI site instead of only RBI with intra bank standards/goals etc
after some time would get ironed out monitoring it, it may be monitored and with inter-banks comparison
as better systems would prevail. by lot of professionals and financial may give us good results.
6) The RBI has got all the data analysts which may help to under-
published/ not published of all the stand any problem within shorter gore_raja@gmail.com

COST
MANAGEMENT
ACTIVITY BASED MANAGEMENT

GLIMPSES OF ITS PRACTICAL
APPLICATIONS
To achieve continuous improvement an organization needs to
be informed. It requires timely and accurate information on the
work that is being done (activities) and the objects of that work
(products/customers). This is what ABC is all about.
A CTIVITY based management (ABM)

is a discipline that focuses on the man-
agement of activities as the route to
improving value received by the customers and
the profits achieved by providing this value.
what traditional cost cutting has always been.
This does not result in lasting reduction in costs.
In contrast the heart of ABM is the activity.
Cost management focuses upon performance
of each activity and its use of resources. Manag-
(Source: CAM I) ing activities and not some abstract measure of
This discipline includes cost key to permanent cost reduction.
1. Cost driver analysis To highlight the above point, the case study
CMA R. Jayaram 2. Activity analysis and of a leading Indian auto ancillary unit has been
Senior Consultant
(Costing) Shriram 3. Performance analysis discussed below.
Value services Pvt ABM draws on Activity based Costing (ABC)
Ltd., Chennai as a major source of information. Corporate profile of company
To achieve continuous improvement an or- Company Xs principal activity was manufac-
ganization needs to be informed. It requires turing and marketing of automotive compo-
timely and accurate information on the work nents. Its products included Gasoline Systems
that is being done (activities) and the objects and Products, Diesel Systems and Products, EMS
of that work (Products/customers).This is what System Products, Emission Control systems, high
ABC is all about. pressure Die cast Products and Precision Ma-
The key to success lies in utilising the good chined Products.The Groups customers includ-
quality information generated from ABC to ed Maruti, Hyundai, General Motors, Cummins,
work. Bosch, Mikuni, TVS Motor Company, Bajaj
Prof Dr. D.Nisar
Ahmed In short, using ABC to improve a business Auto, Suzuki,Yamaha and Hero Honda motors.
Director MEASI is ABM. ABC and ABM are a continuum of The company had recently entered the CON-
Institute of value. ABM is the application of ABC data to TRACT manufacturing market and an exclu-
Management, manage product portfolios and business pro- sive facility was established for this purpose. This
Chennai
cesses better. (see Exhibit 1) plat was devoted exclusively for manufacture of
machined castings.
Reducing cost the activity-based way
Cost cutting without restructuring the work is Plant particulars
like putting the cart before the horse which is 1. Primary operations - pressure die casting

COST
MANAGEMENT
(PDC) and machining tion, due to paucity of capacity, the Plant was also out-
2. Cost structure Material cost constituted less than 35% sourcing a part of its Casting requirements
of the total cost.The percentage of VA was very high. The activities in PDC Department were classified as:
3. Machined castings market - The Machined castings I. Primary
market was highly competitive and threat of customers a. Furnace Related
shifting to new suppliers was very real. This was because b. Machine related
there was not much technology involved and Company c. Fettling
Xs ability to leverage the QUALITY aspectbeyond d. Shot blasting.
a certain extent to impress upon customerswas limit- II. Support
ed. Most of the parts manufactured at this Plant were of a. Die design and procurement
build to print type.The margins were also very low and b. Die and machine maintenance
hence the scope for operational inefficiencies the least. c. Machine setting up
Consequently Company X had decided to implement d. Casting inspection R1, 2 and 3.
an ABC system at this plant on a priority basis
Post successful implementation and validation of ABC Cost identification to PDC activities: Methodology
data (spread over a six month period) the stage was set for adopted
ABM (see Table 1). The mapping of costs captured for PDC cost centre was
All the Machines were Cold Chamber machines with done as per Exhibit 2:
Aluminium being the prime raw material used. In addi- The expenses (resources) booked in PDC Cost centre
Exhibit 1- Link between ABC and ABM

Activity Based Management
Resources
Resources Resources
Cost Drivers What Things
Assignment Cost
Process View
Performance
Cost Drivers Activities Measures
Activity lost Activity

Assignments Drivers
Better
Decision
Making
Cost Objects
Why things
have cost
Source: Peter B.B Turney - "Common Cents"

was traced to activities (For list of activities refer table 2) It was observed that the holding furnaces for both cate-
through Resource drivers. gories of machines (250 and 400T) were of the same size
Resource drivers are bases of allocation of resources to and dimension. Further it was observed that the number
activities.They represent the best single Quantitative meas- of rounds the copper coil was wound for heat retention
ure of the frequency and intensity of demands placed on a was the same for both categories.
resource by the activities (see Table 2 and Exhibit 2).
2. Product mix (weight of castings produced)
Findings Post-implementation The average weight of castings produced from 250 T ma-
The activity driver rates generated threw up some in- chine was around 200 Gms. The average weight in case
teresting results: It was observed that the driver rate (cost of 400T machines was observed to be around 750 Gms.
of melting per kg) for the 250 T furnace and machine The above two findings led to the following two ques-
was consistently more than that for the 400 T furnaces tions being asked
and machines after duly factoring the utilization aspect. 1. Can the size of the furnace or the number of coils being wound
(Refer exhibit 3 and 4 and table 3). This was contrary in the furnace of 250T be reduced? The answer was affirm-
to conventional Industry norms. As per industry norms ative.
casting rates were quoted in terms of per kg or per shot. 2. Relevance of Product mix on furnace and machine rates? It
The per kg and per hour norms were Rs 25 and Rs 30 was observed that the average amount of molten met-
per kg and Rs 1200 and Rs 1500 per hour.(note: rates al in the 250T machine furnace was substantially higher
furnished are composite rates covering both furnace and than the average molten metal lying in the 400 T machine
machines) The normal expectation was that the driver furnaces.This was due to the higher amount of metal be-
rates for 400T furnace and machines were expected to ing displaced each time a part is moulded in the 400T
be higher when compared to that of 250T (see Table 3 as compared to 250T (reason - average weight of parts).
and Exhibit 3). The higher volume of retained molten metal obviously
The above results came as a surprise to the PDC Op- resulted in greater power consumption for 250T furnace
erations team. A task force (cross functional team) con- as compared to 400T given that all other technical pa-
sisting of Costing, PDC and Plant engineering and QC rameters between the 2 furnaces were virtually identical.
team members was set up to investigate the reasons.
The investigation revealed the following as the reasons Follow-up action
for the abovementioned anamoly in rates: The plant team and the top management were pleasantly
1. Furnace size and heat retention technology surprised by the findings. Follow up action along the fol-
An overview of the Plants PDC operations

Table 1
Machine No. off Melting Furnace Holding Furnace
250 Tonne 1 Electric fired Electric fired
400 Tonne 4 Electric fired Electric fired
900 Tonne combined melting 1 Diesel and gas fired combined melting and holding furnace
and holding furnace
Runner cutting 2
machines
Shot blasting 2
machines
Table 2
S No. Activity Resource driver
1 Furnace (melting and holding) Volume of Aluminium melted (in kgs)
2 Die casting m/cs Machine hours operated
3 Shot blasting Surface area of casting
4 Die set up and Maintenance Set up/Maintenance hours

COST
MANAGEMENT
lowing lines was initiated References

Reduction in furnace size this was done during the 1. Common Cents:The ABC Performance Breakthrough
next cycle of crucible replacement in furnaces. 2. Activity Based management - An overview (CIMA
Reduction in the number of copper windings April 2001)
Non critical and lower weight parts manufactured in 3. Implementing Activity Based Management in Daily
250T machine were outsourced. Optimal production Operations , J A Miller
mix (taking into account weight and criticality of the
parts) was devised and implemented in 250T machine Jayaram.r@shriramvalue.com
Post this revamping a significant reduction in Cost
driver rates for 250T machine was noticed. The Plant
Table 3: Machine HR rates
team was able to achieve a reduction of close to 25% in
Months 250T 400T(Avg)
rate/kg for 250 T furnace post modifications. Due to op-
timization of Product mix on the machine there was an May 290.45 302.19
improvement in machine utilization and rate too. June 306.74 384.17
The valuable lessons learnt were also put to use in the July 301.40 266.63
other die casting units of the company.
August 250.46 257.80
ABM also supports the quest for continuous improve-
ment by allowing management to gain new insights into September 191.89 194.32
activity performance by focusing attention on the sources October 819.27 939.95
of demand for activities and by permitting management November 590.23 594.50
to create behavioural incentives to improve one or more
Note: October data was excluded (exceptional month)
aspects of the business.
Exhibit 2 Cost allocation methodology

250 T
400 T
MACHINE
900 T
Depreciation
FURNACE 250 T
FURNACE
FURNACE 400 T
Consumables
FURNACE 900 T
DIE CASTING
CC
SHOTBLASTING MC
Department Power
Setup
Salaries
SET UP
DIE SETUP and
MAINT
Cost Elements
MAINT
Activity Hier 1
Activity Hier 2

Exhibit 3
250 T - Furnace Cost/kg
18
16
14
12
10
Cost
0
May June July August September October November
Series1 16.66 13.44 11.20 12.53 15.10 12.00 16.86
Exhibit 4
400 T - Furnace Cost/kg
14
12
10
8
Cost
0
May June July August September October November
Series1 10.65 10.61 7.25 8.79 10.12 12.68 9.97

CONTEMPORARY
ISSUE
FOREIGN DIRECT INVESTMENT

IN THE TELECOM SECTOR
Given that most domestic operators are facing declining or
stagnating revenues and high debt, FDI is being looked upon as
a key contributor to meet the sectors investment targets. But
the government needs to bring more clarity in its policies related
to regulation, licencing and taxation
CMA Dr M. Govindarajan
Sr. Accounts Officer, BSNL,
Madurai

I nvestment is usually understood as financial contribu-
tion to the equity capital of an enterprise or purchase
of shares in the enterprise. Foreign investment is an
investment in an enterprise by a Non resident irrespective
of whether this involves new equity capital or re-invest-
cilitate FDI and investment from Non Resident (NRIs)
including Overseas Corporate Bodies (OCBs) that are
predominantly owned by them, to complement and sup-
plement domestic investment. To make the investment
in India attractive, investment and returns on them are
ment of earnings. Foreign investments is of two kinds- freely repatriable, except where the approval is subject to
Foreign Direct Investment; and specific conditions such as lock -in period on original
Foreign portfolio management. investment, dividend cap, foreign exchange neutrality, etc.
International Monetary Fund (IMF) and Organi- as per the notified sectoral policy.
zation for Economic Co-operation and Development Foreign direct investment is freely allowed in all sectors
(OECD) define FDI similarly as a category of cross including the services sector, except a few sectors where
border investment made by a resident in one economy the existing and notified sectoral policy does not permit
(the direct investor) with the objective of establishing a FDI beyond a ceiling. FDI for virtually all items/activities
lasting interest in an enterprise (the direct investment can be brought in through the Automatic Route under
enterprise) that is resident in an economy other than that powers delegated to the Reserve Bank of India (RBI),
of a direct investor. and for the remaining items/activities through Govern-
It is the policy of the Government of India to attract ment approval. Government approvals are accorded on
and promote productive FDI from non residents in ac- the recommendation of the Foreign Investment Promo-
tivities which significantly contribute to industrialization tion Board (FIPB).
and socio-economic development. FDI supplements the
domestic capital and technology. Automatic route
Indias economic reform is supported by Foreign Di- FDI up to 100 per cent is allowed under the automatic
rect Investment both into and outside India. Since 1991, route in all activities/sectors except where the provisions
economic reforms are being introduced in many phases. of the consolidated FDI Policy on 'Entry Routes for In-
As a first step to attract more foreign investment, indus- vestment' are attracted. FDI in sectors/activities to the
trial licensing was abolished for all except 18 industries extent permitted under the automatic route does not re-
under the Industries (Development and Regulation) Act, quire any prior approval either of the Government or
1951. Further in 1991, the number of sectors reserved Reserve Bank of India.
for the public sector was reduced to eight as government
wanted to have control only in railway, atomic energy, Government route
defense and other core sectors. Further no prior permis- FDI in activities not covered under the automatic route
sion was needed to be obtained for investment in MRTP requires prior approval of the Government which is con-
designated companies in India since 1991. sidered by the FIPB, Department of Economic Affairs,
Since 1991, both FDI and Portfolio investment have Ministry of Finance. Indian companies having foreign
been liberalized. Foreign Institutional Investors (FIIs) investment approval through FIPB route do not require
have been permitted to invest in shares of listed com- any further clearance from the RBI for receiving inward
panies in the Indian stock market from 1993 onwards. remittance and for the issue of shares to the non-resident
In 1991, automatic approval for FDI projects with up to investors.
51% of the foreign equity in 34 specified sectors was in-
troduced. Now, FDI is being allowed in almost in all Economic benefits of FDI
sectors except gambling, lottery, retail trade (except single Opening up of markets have given immense opportu-
brand), defence, atomic energy and railways. Now many nities to business leaders in India to capture the oppor-
sectors have opened for 100% foreign ownership without tunities over the globe. The fast rising economic perfor-
Indian Government prior approval. Service sectors, led mance of Indian Economy has created an environment
by insurance, telecommunication and information tech- of optimism on the part of the investors to invest more.
nology outperformed their sectors. Indian Industries in the fields of information and Tech-
Foreign Direct Investment (FDI) is now recognized as nology, Steel, Textile, Software and some others have
an important driver of growth in the country. Govern- brought tremendous success for the country. Attracting
ment is, therefore, making all efforts to attract and fa- foreign direct investment (FDI) has become a key part

CONTEMPORARY
ISSUE
of national developmental strategies for many countries. Mobile Number Portability Regulation 2010, Spectrum
While many highlight FDIs positive effects, others blame Management and Licensing Framework, efficient Uti-
FDI for crowding up domestic investment and lower- lization of Numbering Resources, National Broadband
ing certain regulatory standards. The effect of FDI can Plan and Telecom Commercial Communications Cus-
sometimes barely be perceived, while at other times these tomer Preference Regulations, 2010 etc.
can be absolutely transformative. While impact depends The Department of Telecommunications (DOT) un-
or many conditions, well-developed and implemented der the Ministry of Communications and Information
policies can help maximize its gains. Technology is the concerned authority for all matters
The following are the major impact of FDI in the host relating to telecom.The department is responsible for-
countries: formulating the developmental policies;
Faster economic growth; granting licenses for various telecom services;
Increase in trade; promoting standardization, research and development
Employment and skills levels; and as well as private investment in the sector.
Technology diffusion and knowledge transfer; and
linkages and spillover to domestic firms. Phases in FDI
Whilst DoT insisted in the first auctions of 1992-96 that
FDI and growth of GDP bidders for the licence auctions of the 1990s must have
At the moment Indian Economys GDP is sizzling and a foreign partner, there were not all that many telecom
foreign businessmen and investors are swarming to Ban- operators available abroad. Only a few countries had
galore and Mumbai to grab a piece of the action. The liberalized the telecommunications system enough to
foreign direct investment towards various sectors affected privatize their national operation, allow competition and
the Indian economy at significant level. Over the past let their telecommunications companies invest abroad.
four years the GDP of Indian Economy has clocked up Many of the companies such as Bell Canada, Telstra
an average annual pace of more than 8%, compared with (Australia), NTT (Japan), Swiss PTT, Malaysia Telecom,
around 6% in the 1980s and 1990s and a measly 3.5% Philippines Telecom, France Telecom and Stel (Italy)
during the three decades before 1980, when highly inter- took stakes in Indian operations. The disastrous financial
ventionist policies shackled the economy performance of the operators made their foreign part-
ners keen to exit. The Telecom Policy 1994 paved the
FDI in telecom way for FDI participation up to 49% in Telecom industry.
Indian telecommunications sector is the second largest The new Telecom Policy 1999 improved the finances of
wireless network in the world after China. The telecom- cellular companies, many were sold off; foreign direct in-
munications sector is growing at a very fast pace in India. vestors generally divested as part of sales. After its intro-
Huge investment is required for the operators in Telecom duction, the Government, no longer insisted in foreign
industry. FDI is the best solution for financing the tele- partners; so the big cellular conglomerate that emerged
com industry. Now the telecom sector is also the second bought out the foreign equity holders.
highest FDI attracting sectors in India, attracting 6.26% In 2005 India had raised the FDI in telecom services
of the total FDI inflows into India during Apr 2000 to companies from 49% to 74% because it believed that
October 2013.The amount of FDI attracted by telecom- the vast investments the industry would need, if it con-
munications sector during this period was US$ 12889 tinued to expand at the then rate, could not be raised
billion, according to DIPP (Department of Industrial domestically and substantial investment inflows would
Policy and Promotion) statistics. be necessary. Indias telecom had seen growths of
unprecedented magnitudes. At one of point, it even
Investment policy helped resurrect the fortunes of a global giant like
The Telecom Regulatory Authority of India (TRAI) Vodafone. It almost looked as if Indias Telecom story
encourages competition in the telecom sector together could never go wrong.
with better quality and affordable prices in order to meet The telecom industry was reeling under huge debt and
the objectives of New Telecom Policy, 1999. A number has additional capex requirements for 3G and 4G new
of regulations and directions have been issued by TRAI technologies adoption. Some of the operators could not
recently to meet this goal like the Telecommunication able expand their operations due to shortage of funds.

The debt burden on the industry is about Rs.2.5 million. For ISP (with gateways), end to end bandwidth and
The industry, which was among the major attractions for Radio Paging Service - FDI up to 74% is permitted
FDI witnessed the biggest fall in such investments among subject to licensing and security requirements. Here also,
various sectors during April 2011 January 2012. The FDI up to 49% is permitted under automatic route and
uncertain regulatory environment regarding spectrum beyond 49% by FIPB guidelines.
auctions, the one time spectrum fee and retrospective For ISP without gateway, Infrastructure Providers pro-
amendments, intense competition and low profitability viding dark fibre, right of way, duct space,Tower (Catego-
have impacted market growth. ry-I), Electronic Mail and Voice Mail - FDI up to 100%
Following the cancellation of 2G licences by the Su- is allowed subject to the conditions that such companies
preme Court in February 2012, FDI inflow into the in- would divest 26% of their equity in favour of Indian pub-
dustry has reduced significantly. International telecom lic in 5 years, if these companies are listed in other parts
players, which had acquired stakes in domestic compa- of the world. Again, FDI up to 49% is permitted under
nies at high valuations during the peak of the telecom automatic route and beyond 49% by FIPB guidelines.
revolution in the country, incurred huge losses after the For manufacture of Telecom Equipments - FDI up to
companies were forced to close operations. 100% is allowed through automatic entry route.
In June 2013, a panel headed by a senior finance min-
istry official had proposed that higher foreign investment Mergers and acquisitions
be allowed in sectors like defence, telecom, retain and FDI in the telecom industry paved the way for mergers and
commodity exchanges to receive investments and attract acquisitions for synergy of the industry. A series of acquisi-
long term investment. At present 74% to 100% FDI is tions by global players, starting 2007, when the UK-based
permitted for various telecom services. 100% FDI is per- Vodafone acquired Hutchison; Sistema, Norways Telenor,
mitted in the area of telecom equipment manufacturing UAEs Etisalat, the Bahrain Telecommunication company
and provision of IT enabled services.This has made tele- and Japans NTT Docomo made acquisitions. 100% FDI n
com one of major sectors attracting FDI inflows in India. will be helpful for more mergers and for the consolidation
For Basic and cellular, Unified Access Services, Na- of the telecom market. The DoT is yet to finalize the
tional/International Long Distance, V-Sat, Public Mo- merger and acquisition guidelines (see table below).
bile Radio Trunked Services (PMRTS), Global Mobile
Personal Communications Services (GMPCS) and other Security concerns
value added telecom services - FDI up to 74% (including Under the earlier norms, there were a number of secu-
FDI, FII, NRI, FCCBs, ADRs, GDRs, convertible pref- rity-related provisions. These have now been scrapped.
erence shares, and proportionate foreign equity in Indian The following are the security conditions-
promoters/ Investing Company) is permitted. FDI up to The Chief Officer in charge of technical network op-
49% is permitted under automatic route and beyond 49% erations and the Chief Security Officer should be a
by relevant FIPB guidelines. resident Indian citizen;
MERGERS AND ACQUISITIONS IN THE TELECOM INDUSTRY

Acquirer Target Stake (%) Year Price
Vodafone Plc Hutchison Essar 67.00 2007 $11.1 billion
Etisalat Swan Telecom 45.00 2008 $900 million
Batelco S.Tel 49.00 2008 $225 million
Telenor SA Unitech Wireless 33.50 2008 Rs.12.5 billion
Sistema JSFC Shyam Telelinks 10.00 2008 $11.4 billion
Sistema JSFC Shyam Telelinks 46.68 2008 -
NTT DOCOMO TTSL 26.00 2008 $2.7 billion
Source: tele.net April 2013 journal.

CONTEMPORARY
ISSUE
Financial Year wise FDI Equity Inflows from April 2000 to October 2013
TELECOM INDUSTRY
Sl.No. Financial Year FDI (in Rs. Crores) FDI (in US$ million)
1 2000-01 784.16 177.69
2 2001-02 3938.46 873.23
3 2002-03 907.73 191.60
4 2003-04 397.84 86.49
5 2004-05 541.10 118.33
6 2005-06 2751.45 617.98
7 2006-07 2149.58 476.54
8 2007-08 5099.56 1260.70
9 2008-09 11684.81 2548.63
10 2009-10 12269.66 2539.26
11 2010-11 7542.04 1664.50
12 2011-12 9011.53 1997.24
13 2012-13 1654.30 303.87
14 2013-14 (Apr-Oct) 197.16 32.52
GRAND TOTAL 58929.38 12888.58
Source: www.dot.gov.in
Note: Amount includes the Inflows received through SIA/FIPB route, acquisition of existing shares and RBI's automatic route only.
COUNTRY-WISE FDI EQUITY INFLOWS

FROM APRIL 2000 OCTOBER 2013
Sl. No. Name of the country In Rs. Crores In US $ million Percentage
1 Mauritius 41,136.65 9,045.35 70.18
2 Singapore 7,136.97 1,538.41 11.94
3 Russia 1,902.39 394.48 3.06
4 Japan 1,567.47 320.41 2.49
5 U.S.A 1,283.07 280.74 2.18
6 Cyprus 1.186.64 253.00 1.96
7 United Kingdom 1,098.74 242.11 1.88
8 Germany 423.15 100.16 0.78
9 Netherlands 376.89 84.82 0.66
10 UAE 230.40 48.81 0.38
11 British Virginia 223.64 47.77 0.37
12 Australia 185.67 41.43 0.32
13 Spain 174.49 39.52 0.31
14 Hong Kong 115.80 25.59 0.20
15 South Korea 93.91 20.43 0.16
16 Thailand 73.51 17.10 0.13
17 France 70.84 17.04 0.13
18 Sweden 67.60 15.66 0.12
19 Italy 61.98 13.90 0.11
20 New Zealand 56.89 12.31 0.10
21 Cayman Islands 53.05 11.60 0.09
22 Switzerland 47.19 10.30 0.08
23 South Africa 40.78 8.44 0.07

Sl. No. Name of the country In Rs. Crores In US $ million Percentage
24 British Isles 33.15 7.30 0.06
25 Finland 31.33 6.61 0.05
26 The Bermudas 26.01 5.77 0.04
27 Taiwan 20.83 4.58 0.04
28 Maldives 19.61 4.37 0.03
29 Saudi Arabia 8.10 1.73 0.01
30 Bahamas 8.17 1.69 0.01
31 Kuwait 6.34 1.36 0.01
32 Malaysia 5.85 1.11 0.01
33 Chile 4.50 1.00 0.01
34 Seychelles 3.49 0.87 0.01
35 Czech Republic 3.17 0.71 0.01
36 Israel 2.54 0.55 0.00
37 Qatar 2.99 0.54 0.00
38 Korea (North) 2.15 0.45 0.00
39 Greece 1.38 0.31 0.00
40 Liechtenstein 1.20 0.30 0.00
41 Ireland 1.33 0.30 0.00
42 Luxembourg 1.22 0.27 0.00
43 China 0.98 0.21 0.00
44 Canada 0.64 0.15 0.00
45 Bulgaria 0.63 0.14 0.00
46 Sri Lanka 0.47 0.10 0.00
47 Philippines 0.38 0.08 0.00
48 Turkey 0.24 0.05 0.00
49 Belgium 0.09 0.02 0.00
50 Denmark 0.04 0.01 0.00
51 Oman 0.01 0.00 0.00
52 Bermuda 0.00 0.00 0.00
53 Scotland 0.00 0.00 0.00
54 Austria 0.00 0.00 0.00
55 Indonesia 0.00 0.00 0.00
56 NRI 333.01 77.02 0.60
57 Country Details awaited 801.83 181.61 1.41
Grand Total 58,929.38 12.888.58 100
SECTOR-WISE FDI EQUITY INFLOWS

FROM APRIL 2000 TO OCTOBER 2013
Sl. No. Sector Amount of FDI inflows
Percentage of total inflow
(in Rs. Crores) (in US $ billion)
1 Telecommunication 19,325.26 4,271.19 2.07
2 Radio Paging 27.30 5.93 0.00
Cellular Mobile/Basic
3 29,785.91 6,488.007 3.15
Telephone Serviceds
4 Others 9,750.91 2,123.39 1.03
GRAND TOTAL 58,929.38 12,888.58 6.26
Details of infrastructure/network diagram (technical munications) would be required if such information is

details of the network) could be provided on a need to be provided to anybody else;
basis only to telecom equipment suppliers/manufac- For security reasons, domestic traffic of such entities as
turers and the affiliate/parents of the licencee company. may be identified/specified by the licensor shall not be
Clearance from the licensee (Department of Telecom- hauled/routed to any place outside India;

CONTEMPORARY
ISSUE
The licensee company shall take adequate and time- Indian and to the designated security agency/licensor
ly measures to ensure that the information transact- in which a mirror image of the remote access informa-
ed through a network of the subscribers is secure and tion is available in line for monitoring purposes;
protected; Complete audit trail of the remote access activities
The officers/officials of the licensee companies dealing pertaining to the network operated in India should be
with the lawful interception of messages will be resi- maintained for a period of six months and provided on
dent Indian citizens; request to the licensor or any other agency authorized
The majority directions on the Board of the Company by the licensor;
shall be Indian citizens; The telecom service providers should ensure that nec-
The position of the Chairman, Managing Director, essary provision (hardware/software) is available in
Chief Executive Officer (CEO) and/or Chief Finan- these equipment for doing the Lawful interception and
cial Officer (CFO), if held by foreign nationals, would monitoring from a centralized locations;
require to be security vetted by Ministry of Home The telecom service providers should familiarize/train
Affairs (MHA), Security vetting shall be required pe- Vigilance Technical Monitoring (VTM) security agen-
riodically on yearly basis. In case something adverse cy officers/officials in respect of relevant operations/
is found during the security vetting the direction of features of their systems;
MHA shall be binding on the licensee; It shall be open to the licensor to restrict the Licencee
The company shall not transfer the following to any Company from operating in any sensitive area from the
person/place outside India: National Security angle;
Any accounting information relating to subscriber In order to maintain the privacy of voice and data,
(except for international roaming/billing) (Note it does monitoring shall only be upon authorization by the
not restrict a statutorily required disclosure of financial Union Home Secretary of Home Secretaries of the
nature); and\ States/Union Territories;
User information (except pertaining to foreign sub- For monitoring traffic, the licensee company shall pro-
scribers using Indian Operators network while roaming); vide access of their network and other facilities as well
The company must provide traceable identity of their as to books of accounts to the security agencies;
subscribers. However, in case of providing service to The aforesaid security conditions shall be applicable to
roaming subscriber of foreign companies, the Indian all the licensee companies operating telecom services
company shall endeavor to obtain traceable identity covered under the circular irrespective of the level of
of roaming subscribers from the foreign company as a FDI;
part of its roaming agreement; Other Service Providers (OSPs) providing services like
On receipt of the licensor or any other agency au- Call Centers, Business Processing Outsourcing (BPO),
thorized by the licensee, the telecom service provider tele-marketing, tele-education, etc., and are registered
should be able to provide the geographical location of with DoT as OSP. Such OSPs operate the service
any subscriber (BTS location) at a given point of time; using the telecom infrastructure provided by licensed
The Revenue Access (RA) to Network would be telecom service providers and 100% FDI is presented
provided only to approved location(s) abroad through for OSPs. As the security conditions are applicable
approved location(s) in India. The approval for loca- to all licensed telecom service providers, the securi-
tion(s) would be given by the Licensor (DoT) in con- ty conditions mentioned above shall not be separately
sultation with the Ministry of Home Affairs; enforced on OSPs.
Under the circumstances should any RA to the sup- The new rules, while permitting 100 per cent FDI
pliers/manufacturers and affiliated be enabled to access want the operating company to fulfill licence conditions
Lawful Interception System (LIS), Lawful Interception as contained in Chapter VI of the licence agreement.
Monitoring (LIM), Call contents of the traffic and such What now has been stated for security conditions for
sensitive sector/data, which the licensor may notify licencee as well as investors is as notified by the Depart-
from time-to-time; ment of Telecommunications from time to time.
The licensee company is not allowed to use remote While 49 per cent FDI has been permitted through
access facility for monitoring of content; the direct route, anything above that will have to go
Suitable technical device should be made available at through the Foreign Investment Promotion Board. The

new relaxed rules make things easier for investors at the The idea behind the decision to increase FDI limit in
time of taking approval from the FIPB. telecom industry is to help the industry in getting fresh
funds to lower financial burden.The move also brings re-
Impact of 100% raise in FDI lief for foreign partners in telecom companies as they can
According to Cellular Association of India, the industry is have complete ownership of the business. Foreign inves-
marred into the debt of 1.86 lakh crores and could only tors will no longer need to partner with Indian investors
attract less than 9% of the total FDI that came in last 12 in order to comply with regulatory authorities.
years in the country. The move of increasing FDI limit to The impact will be limited since the problems faced
100% will act as a catalyst in reducing the debt. It is ex- by telecom companies are to do with regulation and li-
pected to open the route for fresh investments and would censing not investment per se. Some tower companies
attract more overseas investors at a time when operators which are 100% foreign owned (e.g. American Tower)
are struggling with their capex based investments. could benefit. They do not require licences. However,
they would have been obliged to dilute ownership if the
government required them to obtain Unified Licences, as
the TRAI has recommended, says telecom analyst Ma-
hesh Uppal.
The Telecom Commission plans to establish the
THE IDEA BEHIND THE Telecom Finance Corporation (TFC) to address the
sectors funding challenges. It is proposed to be set
DECISION TO INCREASE FDI up on the lines of financing bodies such as the Pow-
er Financing Corporation and the Tourism Finance
LIMIT IN TELECOM IS TO Corporation of India. The proposed TFC would aim
HELP THE INDUSTRY GET at providing Rs.380 billion of funds over a five year
period.
FRESH FUNDS TO LOWER THE
Conclusion
FINANCIAL BURDEN. THE Opening the FDI up to 100% is not sufficient for industry
and additional measures like allowing inter operator 3G
MOVE ALSO BRINGS RELIEF roaming to accelerating MVNOs must be taken to help
TO FOREIGN PARTNERS India based players to offset the debt burden they are pres-
sured with. The government is targeting an investment of
IN TELECOM COMPANIES Rs.9.41 trillion in telecom in the 12th Plan (2012-17).
Of this Rs.8.71 trillion would be contributed by the pri-
BECAUSE THEY CAN HAVE vate sector. Given that most domestic operators are facing
declining or stagnating revenues and high debt, FDI is
COMPLETE OWNERSHIP OF being looked upon as a key contributor to meet the sec-
THE BUSINESS. FOREIGN tors investment targets. The government needs to bring
more clarity in its policies related to regulation, licencing
INVESTORS WILL NO LONGER and taxation.Taking lessons from 2G scam, the allocations
have to be made in more transparent manner. Tussle over
NEED TO PARTNER WITH the inter-circle roaming, licence renewals and other issues
are unlikely to send a positive message outside.
INDIAN INVESTORS IN
Reference:
ORDER TO COMPLY WITH THE 1. www.dot.gov.in
REGULATORY AUTHORITIES 2. www.trai.gov.in
3.Tele.net journals
govind.ayyan@gmail.com

TRANSFER
PRESIDENTS
COMMUNIQUE
PRICING
INTERNATIONAL TRANSFER
PRICING ISSUES AND
CHALLENGES FACED BY MNCs
AND REGULATORS
The nature of trade has undergone a makeover, from parent-run
distant subsidiaries to a more globalized organization with many
cultures and value chains operating at the same time and place.
In this scenario, transfer pricing cannot be written in stone and
be permanent; it has to be continually regulated and tailored as
per the needs of the situation and geographic location
I N the last two decades, globalization has

happened at a very rapid pace. New econ-
omies have emerged, new markets have
developed and corporates have recognized
such shifts and capitalized on them by enter-
and the tax authorities.
Picciotto (1997) states that, all nations have
their own arguments and bargain to secure
their national interest and it is very difficult to
reach at a common ground between counter-
ing into these markets. Corporate have started parts, lawmakers and diplomats. True sense of
expanding their market reach and customer globalization would be achieved when there
base and are in constant pursuit of effective- is a complete harmonization of legal regime
Pradip Banerjee ness by lowering their costs, and increase reve- which covers matters of international concern.
Assistant Professor
National Institute
nue. Their supply chains become increasingly If we extrapolate the same to International
of Industrial complex due to rigorous trades within their Transfer Pricing, this would mean establishing
Engineering (NITIE) group companies. a regime which is common to all, transgressing
Mumbai Among several cost components tax expend- the conflict between regulators and corporate.
iture is one of the important components for Elliot and Emmanuel (2000) define interna-
the corporate. Different tax laws and tax struc- tional transfer pricing (ITP) as the monetary
tures exist in different countries. Tax author- value of goods, services and intangibles, which
ities are under tremendous pressure to realize are traded between the units of the same group
more tax revenue to fund the development ac- of companies across national boundaries.
tivities and reduce fiscal deficit. Multinational International transfer pricing has a deep root
corporations try to take the tax advantages by in both political economics and accounting.
manipulating the transfer prices from one sub- Political economy determines the level of in-
sidiary to another. PwC (2011)1 shows that al- vestment in a country and affects the law mak-
most 2/3rd of the world trade between related ing process. Accounting measures indicate the
companies has direct impact on the company methods of which are used to employ transfer

pricing techniques, understanding the arm-length prin- raw material costs are relatively low. The production is
ciple, valuation of goods and services that are transferred then exported to European and North American markets
and determine the income allocation to various sub- and sold at a higher price. Kant (1995) shows that signif-
units. Trade of intangible and service transfer pricing is icant part of FDI is in horizontally integrated activities
always a prime area of disagreement between regulator and also states that large part of the internal trade are now
and corporate. In this essay, I shall touch upon both ac- conducted between units of MNCs.
counting and regulatory aspect of international transfer
pricing. Accounting
MNCs are primarily driven by profit motive hence it
Economic becomes very important for them to strategically allocate
International Transfer Pricing (ITP) has significant ef- income and incentives amongst its various units (Bastian
fect on both macroeconomic and microeconomic fac-
tors which directly affect the MNCs. Also it covers the Table.1
most vital tax issues which an MNC has to deal with. Year No. of Parents Firms No. of Foreign
This issue become more important considering the Affiliates
flow of foreign direct investment (FDI) in the global 1997 44500 275000
economy (Elliot and Emmanuel, 2000). MNCs have 2005 78817 794894
increasingly forayed into developing and transition- 2010 103786 892114
al economy to widen their market share and achieve
Source: UNCTAD Report 2012.
economies of scale. Such markets are highly profitable
and very cost effective. As per UNCTAD 2012 pub-
lished data, the FDI inflows to transition and developing 2006). Martinson & McKee (2001) point out that MNCs
countries increased by a combination of 36% as against are becoming more decentralized in search of increase
21% to developed countries. It is also reported that tran- market share and higher competitions. They also men-
sition and developing countries jointly account for 51% tion that in relation to global operations and accounta-
of global FDI.The number of parents firms and number bility three issues must be adhered while determining the
of foreign affiliates have gone up by several folds in the transfer pricing namely, goal congruence, efficient alloca-
past 15 years. tion of resources and evaluation of performances.
It would be interesting to look at the business done by Management accountant must carefully determine the
MNCs and as reported by UNCTAD 2013, that in 2012 transfer pricing method they use for the purpose of arriv-
MNCs employed around 69 million people and gener- ing at the transfer price which they charge on the move-
ated $28 trillion in sales and added value to the tune of ment of products and services within their group. A firm
$7 trillion. This is almost 9% increase from the reported can select the best transfer pricing methods based on the
figure of 2011. UNCTAD 2013 also reports MNCs are nature and operations of the firm.
holding record cash and cash equivalent which are not
been channelized to investment yet. Once they start in- The Arms Length Principle (ALP)
vesting in we may witness a surge in FDI. By definition, the accounting methods which are ac-
If we look at the similar kind of statistic for the four ceptable to the tax authorities are the one that comply
BRIC countries namely Brazil, Russia, India and China, with the Arm Length Principle (ALP). This principle is
in the recent past, only for the year 2010, the increase is
Table.2.
far more than the global average.
Anandanrajan et. al. (2007) observed MNCs are aggres- Year No. of Parents Firms No. of Foreign
Affiliates
sively expanding their operation worldwide, especially in
transitional economies like China, India, Egypt etc. as Brazil 243 4547
they are primarily motivated by the profit maximization Russia 116 2139
objective and hence have chosen to establish permanent India 1076 2033
establishment in the above countries where the labor and
China 12000 434248
PwC, 2011. Transfer Pricing and developing countries. PwC. EU Initiative

1 Source: UNCTAD Report 2012

TRANSFER
PRESIDENTS
COMMUNIQUE
PRICING
considered to be the gold standard since 1934 and being This method assess the profit arises in related party trans-
used to determine the value of the cross border transaction. Similar to transaction based method the profit
action executed within the company. The principle re- based method also have three ways to determine the ALP.
quires valuing the transactions between units of MNCs First, comparable profits method, where, we compare the
at a price which are charged for similar transaction be- operating profits revealed by the controlled enterprise
tween unrelated parties. The Internal Revenue Service with that of uncontrolled companies who are undertak-
(IRS) and Organization for Economic Co-operation and ing similar functions and are in the same market faced
Development (OECD)2 have extended their consensus with a similar risk exposure.
that all related party transactions must be based on appli- The second method is transaction net margin meth-
cation of ALP.The IRS and OECD regulations lay down od, where we use net margin to arrive at arm length
the various methods which can be used by MNCs to price and compare related and unrelated transaction.
quantify their intra group transactions.These methods are This method is somewhat similar to comparable profit
called acceptable transfer pricing methods. The accept- method. The last method is profit split method, where
able transfer pricing methods can be classified into two the profit earned between two or more related entities
broad categories (a) transaction based method and (b) is split between them by using an equitable formula in
profit based methods. proportion to the capital employed and risk profiles.This
method become very useful when there is no informa-
Transaction-based method tion about comparable transaction available.
This method aims to draw a comparison between the A study of 73 German companies carried out by Wolff
prices changed between related parties with the price (2007) conclude that market price based technique of
charged in a comparable transaction between unrelated transfer pricing strongly promotes motivation and effec-
parties. Again under the transaction based method, there tiveness amongst managers. On the other hand, Urquidi
are three ways to determine the ALP. First, the compa- & Ernest (2006) conclude that cost based techniques are
rable uncontrolled price, where we compare the price better due to ready availability of data of certain com-
charge for sales between unrelated parties for a similar parable transaction. Kuntz & Vera (2005) conclude from
transaction. The most accurate price can only be deter- their empirical research on analyzing 57000 procedure
mined when the circumstances in which the deal has sur- carried out at a German Hospital, that resources are bet-
faced are similar to one between the related parties.These ter utilized by subsidiaries when they are asked to pay for
circumstances could be the timing of the transaction or the same with their own financial resources. There is a
terms on which the deal has been accepted. The draw- notable increase in financial awareness specially related to
back of this method is that it is difficult to find a trans- costs incurred.
action which can be termed as similar in open market. It is a big challenge for management accountant to de-
The second method call the resale price, in which the velop an appropriate transfer pricing policy for the group
buyer must pay an order to allow to realize a gross margin as a whole. Anandarajan et al. (2007) point out that a
which is comparable to that earned by other companies right transfer pricing must have some characteristics like,
on a similar transaction. The drawback of this method is it should take the best tax advantage of the tax differen-
that the entire gross margin information cannot be relied tial between nations, improve the cash flow of the group
upon correctly. and fully adhere the arm length guidelines. However, this
The third method is cost plus, which is fairly straight appropriate transfer pricing policy should be coupled
forward. Here it takes the cost of production incurred with subsidiary evaluation, incentivize and reward system
over which normal profit margin is apportioned. Most within an MNC (Urquidi 2008).
importantly, this mark up must be derived from margins
realized by unrelated parties from the sales then affect Arms Length Principle: Too narrow?
from transactions of similar nature and product. The ALP is the global benchmark to determine transfer
prices for tax purposes however it should be appreciated
Profit based method that there is no standard management approach to de-
termine transfer prices ex-ante in the tax world, which
2
The OECD first proposed the ALP in 1995 through article 9 of OECD model tax
is ex-post (Brem & Tucha, 2006). MNCs use one of the
convention and the OECD transfer pricing guidelines OECD 2009 and OECD 2010. transfer pricing methods as per taxation rules to deter-

mine ex-ante prices thus distort the internal organiza- price with which they have transacted at with their sub-
tions profitability figures, which are used for incentive sidiaries. Cools et al (2008) believe that the more com-
purposes. There is growing criticism that the modern prehensive the documentation, tax authorities would
framework of the tax world in international transfer pric- be more close to accepting the procedure applied. The
ing and consequently allocation of profits is depended documentation must enable a functional analysis of the
upon a narrow ALP concept. Such an interpretation of transaction so that it can be extrapolated to conclude
ALP does not link mainstream transfer pricing with the upon the tasks performed, assets utilized, risk profiles of
corresponding method used to determine transfer price. the various parties, in short be Arms Length in the true
The price does not reflect the market size, internal skills, and genuine sense. MNCs are also required to support
knowledge and incentives. their self assessment with other comparables. MNCs in
ALP is built on the belief that income of a related com- the true sense, face a lot of pressure in combating with
pany should be on the same lines as that of an unrelated the documentation requirements of the regulators.
company under similar circumstances and facts. It should
identify the tax base of a related company such that the Corporate perspective of ITP
transaction under consideration was not organized with- As cross border trades increases between firms, the trans-
in the group of the MNC but rather between independ- fer pricing policies of these MNCs are taking the center
ent companies. The narrow characteristic of the ALP stage. The exploratory field work conducted by Elliot &
does not differentiate between the external and internal Emmanuel (2003) on 12 MNCs, concluded that ITP is
transactions on the facet of differentials in governance. centrally determined and not left the discretion of the
If ALP is able to reflect the transaction specific govern- subsidiary and operations are considered as a whole.
ance structures and contractual differences, getting hold In the global context MNCs pursue a variety of goals
of third party comparable with similar characteristics of like profit maximization sales, marketing strategies, tax
governance can be described as a needle in the haystack. optimization, reducing duties and tariff etc. hence there
Similar asset categories and unique activities often asso- arises a dual role of transfer pricing system with tax op-
ciated with intangibles, limit the scope of comparability. timization in one hand and management control on the
Even if comparable transactions are found in the mod- other hand. (Cools et al. 2008).This hints in the direction
ern databases with similar governance structures, specific that MNCs maintains two sets of transfer pricing books,
transaction related attributes are not available. one for internal use or for management control and oth-
What is most important is the international context er for tax compliances. However a study conducted by
to the issue of comparable data. This would be to the Hyde and Choe ( 2005) conclude that the cost of main-
benefit of both the tax authorities and the MNCs in taining two separate sets of books out-weight the benefits
addressing the concerns of ALP thereby avoiding disputes due to which only one set is followed, i.e to serve the
and help clear the air of uncertainty over this issue which tax purpose.This makes life more simpler for MNCs and
has been explained all throughout this write up. Both the also avoid any tax dispute with tax authorities (Baldenius
tax authorities and MNCs commit a lot of resources in et al., 2004). On another study, Bartelsman & Beetsma
accumulating comparable data for the purpose testing the (2003), empirically show that the MNCs reduce their tax
arms length character.These databases are still available to liabilities by two ways. First, design the right financing
an extent in the US, Canada and other European coun- structure of the subsidiary. In the high taxed countries,
tries, but many OECD countries and even more impor- the subsidiary uses high debt in the capital structure and
tantly the BRIC do not have a very comprehensive da- benefit of interest tax shield. Second, use of income shift-
tabase to test the arms length character (Brem & Tucha, ing through the regular and more know channel of in-
2006).The BRIC are a very big feature in the expansion tra-firm transaction of goods and services.
of world trade hence it is all the more important for them MNCs who are not able to comply with tax oriented
to involve themselves in extensive international coopera- regulations are at risk both financially and that of denting
tion in accumulating comparable data which would tan- their market reputation. Financial risk would constitute
tamount to better regulation more experienced approach imposition of penalties levied on them by the authorities
and improving tax collections. on account of violation of the transfer pricing regulations.
Both the OECD and IRS require extensive documen- Eden et. al. (2005), described how the penalties impacted
tation from the MNCs in support for the arms length the profitability of MNCs. According to them, the im-

TRANSFER
PRESIDENTS
COMMUNIQUE
PRICING
position of penalties would affect the MNCs incentive this fact, also highlights that due to increased volume of in-
to move profits by manipulation of transfer prices. Their ternational trade with developing countries, their respec-
analysis was restricted to Japanese MNCs with US sub- tive revenue authorities only realize about 40% of their tax
sidiaries. Their empirical results concluded that the cash collection potential. This is due to their unsophisticated
flows in the US declines thereby negatively affecting the administrative procedures; these nations in particular have
stock prices. This refers to the induction of US transfer now started strengthening their regulatory activities and
pricing penalties. thus now pose a greater level of risk for the MNCs.
Post 2008, the worldwide crisis, government deficits
Double taxation issues have scaled their peaks and tax authorities are expected
There is one more problem of MNCs the double taxa- to step up all possible efforts in order to net maximum
tion issue. MNCs are definitely be wary about being taxed tax revenues (Wong et al., 2011). They fear that MNCs
twice on the same income since their operations stretch engage themselves in manipulation, which will reduce
numerous jurisdictions. The solution to this problem is government collections in the form of taxes, duty rev-
Advanced Pricing Agreement (APA). This is a proce- enues and exert pressure on their balance of payments
dure by which the taxpayers and the tax regulators would thereby distorting the location as an international site for
agree well in advance on the methodology by which the production and employment.Wong et al, (2011) also state
transfer prices would be arrived upon.This eliminates the that if transfer pricing by MNCs is left unchecked, then
risk that the authorities would challenge the procedure they will have every possible motivation to shift profits
adopted by the MNCs once the tax is calculated and paid. between jurisdictions and thereby achieve the objectives
APAs could be unilateral i.e. between an MNC and one of minimizing global tax payments.
tax authority or it could be bilateral/multilateral i.e. be- The rising interest of tax authorities in the importance
tween multiple tax authorities depending upon the coun- of ITP has resulted in growing number of audits. It is be-
tries transacted in. From the corporate perspective, since lieved that resource constraints have prevented them from
APAs avoid litigations with tax authorities, it saves signif- auditing all the tax returns filed by the MNCs (Dhawale
icant legal costs for the MNCs. An APA would signify et al., 2009). In this regard, the tax authorities themselves
that with respect to the type of transaction in question, apply audit prudence and assess the efforts which would
the proposed transfer pricing method would be the best be required to allocate to a particular case. Before going
way of arriving at an arm length price. However, such ahead with the case, tax authorities would consider com-
processes are time consuming and also require user partic- plicated transactions which are not easy to benchmark
ipation fees (Martinson & McKee, 2001). In fact in many from the available comparable data and would potentially
nations, this kind of legislative activity is not fully adopted enable them affect large adjustments. If the tax authorities
owing to the weakness in transfer pricing regulations and would want to build a case against the returned transac-
is mainly a feature in the developing nations. tion, the burden of proof lies with them to substantiate the
clauses of adjustments.
Regulatory perspective of ITP In the advent of service industry, it is becoming a great
Transfer pricing is high on the agenda on regulators challenging task of valuing the transfer price of the ser-
around the world, because it is believed that 2/3rd of all vices within the business group. The transaction which is
the business transactions across the globe is done within being increasingly scrutinized by authorities is the trade
groups of companies (PwC, 2011). The exponential in- of intangibles. The problems of services and intangibles
crease in intra firm trade has resulted in tax authorities are unique and therefore difficult to regulate from the tax
paying close attention to the transfer pricing transactions perspective. Tax authorities pay very close attention to
of the MNCs (Garrison et al., 2007). The issues of regu- such transactions because of the fact that substantial profits
lation have been in a constant state of flux due to MNCs or losses, as the case maybe are allocated to the intangibles
never ending pursuit of transfer pricing manipulation. involved in the global network of transactions. Tax au-
Regulation has struggled to keep pace with the objectives thorities believe that it is in these particular manipulations
of MNCs transfer pricing policies. lay the big dollars of tax revenues, which they can accrue
This topic is particularly important to developing econ- by discovering the malpractice.
omies as they have started attracting large sums of invest- The global network of MNCs has expanded vastly
ment across the world.The same report, which highlights making it difficult to regulate as it must be acknowledged

SINCE THE PROBLEMS OF SERVICES AND ITS INTANGIBLES
ARE UNIQUE AND THEREFORE DIFFICULT TO REGULATE
FROM THE TAX PERSPECTIVE, TAX AUTHORITIES PAY VERY
CLOSE ATTENTION TO SUCH TRANSACTIONS
that the regulatory limits are only restricted to their par- 26% of the European Union in 2010. All the four nations
ticular national boundaries however for the MNCs, their taken together are within the top 10 trading partners with
domain stretches across many jurisdictions. This is even the European Union in 2010 and accounts for 19% of the
more evident for developing nations. They have limited world trade.
resources in terms of skills and databases with which they
can administer and regulate all the tax planning activities Conclusion
of the MNCs. It is evidenced after discussing many aspects that intra-firm
cross-border trade in MNCs has exponentially increased
The BRIC focus in volume and complexity. Contractual natures have
The survey of E&Y (2012)3 reports that expansion in the evolved with time. Exchange of intangibles is now a sure
emerging markets have increase the risk and uncertainty thing along with trade of goods is now a regular feature
for the MNCs. It also reveals that 92% of China-based that many transactions between the firms are not priced
and 62% of Brazil based companies confirms that that as their exchange is conducted with the MNCs domain.
they have experienced a rise in the volume or aggressive- The objectives of the corporate and the tax authorities dif-
ness of tax audits in the last three years. Furthermore, 85% fer in many aspects and thus making transfer pricing very
companies based at India and 88% of companies based at important in the global context. Some MNCs would
China have experienced growth in disclosure and trans- solely be concerned with their overall global profitability,
parency requirements in the last two years and 78% of on the flip side some might be committed towards actual
BRIC-headquartered companies reported greater risk or determination of profits on each sub-units and measure
uncertainty around legislation, whereas the global average the performance within the brass of managers.
is 67% only. Transfer pricing is not a pure science. The widest gap
BRIC nations have become a significant focal point which is present in this section of the background to the
with regards to the transfer pricing due to increased for- transfer pricing is between the expectation which aris-
eign investment and the existing state of affairs from the es from adopting a regulation and implementing it to a
regulation point of view.A 2009 survey conducted by For- sustainable capacity and live up to the standard of inter-
tune Magazine of the 500 largest corporations revealed that national law capable to administering complex intra-firm
around 10% of them were parented in BRIC nations as transaction. There is no shortage of issues in such liberal-
against 14% Japanese and 28% American. ized time which require a global solution with specific
If some of the trade statistics and GDP contributions focus laid on business regulation. However, it is of utmost
we look, we find that in 2005 the share of Brazil, China importance for negotiating nations to strike a correct bal-
and India in the flow of intermediate goods is to the tune ance between economic reality and political acceptability.
of 70% (Maurer & Degain, 2010). The BRIC nation to- The nature of trade has undergone a makeover, from
gether contribute 17% to the world GDP as compared to parent-run distant subsidiaries, to a more globalized or-
ganization with many cultures and value chains operat-
3
Ernst & Young, 2012. Tax Risk and Controversy Survey: A new era of global risk
ing at the same time and place. Since this shift they have
and uncertainty. European Union, 2012. realized that transfer pricing cannot be written in stone

TRANSFER
PRESIDENTS
COMMUNIQUE
PRICING
and be permanent for the rest of their operating life, it has 10. Garrison, R.H., Noreen,W. & Brewer, R.C., 2007.
to be continually regulated and tailored as per the needs Managerial Accounting. 12th ed. New York: McGraw
of the situation and vicinity of their geographic location. Hill/Irwin.
Life has become very complex for MNCs in context of 11. Hyde, C.E. & Choe, C., 2005. Keeping two sets of
justifying prices to be at arm length. books:The Relationship between Tax and Incentive Transfer
Pricing. Journal of Economics & Management Strategy,
Reference 14(1), pp.165-86.
1. Anandarajan, A., McGhee, M. & Curatola, A.P., 2007. 12. Kant, C., 1995. Minority Ownership, Deferral, Perverse
A Guide to International Transfer Pricing.The Journal of Intrafirm Trade and Tariffs International Economic Journal,
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2. Baldenius,T., Melumad, N. & Reichelstein , S., 2004. 13. Kuntz, C. & Vera, A., 2005.Transfer Pricing in Hospitals
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pp.2225-52. 15. Maurer, A. & Degain, C., 2010. Globalization and
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33(6), pp.603-28. agement Transfer Pricing, 15(13).
7. Dhawale, H., Manasuev , A. & Slimmen, R., 2009. 19. Wolff, , 2007. Market Price-Based Transfer Pricing Sys-
Managing transfer pricing risk.Transfer Pricing Internation- tems. Empirical Evidence for Effectiveness and Precondi-
al Journal, May, pp.1-11. tions. Problems and Perspectives in Management, 5(2),
8. Eden, L., Juarez Valdez, L.F. & Li, D., 2005.Talk Softly pp.66- 74.
but Carry a Big Stick:Transfer Pricing Penalties and the 20. Wong, H., Nassiripour, S., Mir, R. & Healy,W., 2011.
Market Valuation of Japanese Multinationals in the United Transfer Price Setting in Multinational Corporations.
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9. Elliot, J. & Emmanuel, R., (2000). International Transfer
Pricing: searching for patterns. European Management
Journal,Vol.18 2, pp. 216-222. pradip2002@gmail.com
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Campus Placement Programme
of the Institute
SCHEDULE OF THE CAMPUS PLACEMENT PROGRAMME

Date for written test/ PPT Date for Interview/
S No. Location
by companies (if any) Process of Selection
1. Mumbai 19.09.2014 20.09.2014
2. Delhi 26.09.2014 27.09.2014
3. Kolkata 10.10.2014 11.10.2014
4. Chennai 17.10.2014 18.10.2014
5. Ahmedabad 10.10.2014 11.10.2014
6. Kochi 25.10.2014 26.10.2014
The campus placement of the Institute has attracted many recruiters. Some of the
organisations who had visited our campus in the past were BHEL, ONGC, Coal India, ITC,
Allahabad Bank, IDBI, LANCO, MMTC, STC, Power Grid Corporation, Ramco Systems,
Haldia Petro Chemicals, HUDCO, BSNL, ICICI Bank, Ashok Leyland, SEBI, Nestle, Wipro,
TCS, Tata Motors, Bosch, iGate, KPMG, Goldman Sachs, etc.
For details, please contact:

Director (Training and Placement)
4th Floor, CMA Bhawan, The Institute of Cost Accountants of India
3, Institutional Area, Lodhi Road, New Delhi 110003, Email: placement@icmai.in,
Website: www.icmai.in

CMA DOSSIER
A directory of some research papers on Forensic Accounting that appeared in various
journals/periodicals/magazines across the world is presented below for the reference of
readers. The articles are available at the link provided next to them.
Name of the topic Author Reference with date Link

A Survey on the Need to International Journal of
Offer Forensic Accounting Sutan Emir Hidayat Pedagogical Innovations @ http://www.uob.edu.bh/uob__
Education in the Kingdom of Amani Ali Al-Sadiq 2014: Scientific Publishing files/685/vol%202-2/5.pdf
Bahrain Center, University of Bahrain
Forensic Accounting A
Sampson Anomah Research Journal of Finance http://www.iiste.org/Journals/
Multifaceted Standard for
Boadu Ayeboafo and Accounting index.php/RJFA/article/
Cleaner, Stewardship in Weak
Owusu Agyabeng Vol.5, No.2, 2014 view/10677/10882
Regulatory Environments
http://www.selptrust.org/sjss/
Forensic Accounting: A
Dr. Prerna Jain SELP Journal of Social FORENSIC%20ACCOUNTING%20
Burgeoning Tool to Prevent
Dr. Anurodh Godha Science April- June 2014 A%20BURGEONING%20TOOL%20
Financial Fraud
TO%20PREVENT.pdf
Sai Om Journal of http://www.saiompublications.
Financial Forensics: Way to
Supreet Kaur Commerce & Management com/journal/index.php/ISSN-2347-
Abate Corruption
May, 2014 7571/article/view/139/pdf_29
The Role of Qualifications of
Accounting Profession in the
International Conference
Prevention and Detection
evala Isakovi-Kaplan on Economic and Social http://eprints.ibu.edu.ba/2592/
of Accounting Frauds in
Sciences July, 2014
Companies in Bosnia And
Herzegovina
http://www.scirp.org/
China Needs Forensic Zabihollah Rezaee, journal/PaperInformation.
JSS, Vol.2 No.5, May 2014
Accounting Education Michael Ha, Daniel Lo aspx?paperID=45792#.U_
R2E6IWkb4
Forensic Accounting Skills
http://mcser-org.ervinhatibi.com/
and Techniques in Fraud D. O Gbegi, J. F.
Vol 5, No 3 (2014) Gbegi journal/index.php/mjss/article/
Investigation in the Nigerian Adebisi
view/2139
Public Sector
Can Governance and Rotman International Journal http://utpjournals.metapress.com/

Forensic Accounting Metrics Ophir Gottlieb of Pension Management, content/4388885042231608/full-
Predict Stock Returns? Volume 7, Issue 1 Spring 2014 text.pdf
The Growing Relevance of

Forensic Accounting as a Augustine, Ehijeagbon Research Journal of Finance
http://iiste.org/Journals/index.php/
Tool For Combating Fraud Akhidime, RoseMary. E. and Accounting
RJFA/article/view/10681/10886
and Corruption: Nigeria Uagbale-Ekatah Vol.5, No.2, 2014
Experience
Oluwatoyin Muse
Influence of Fraud Related
Johnson Popoola
Problem Representation on http://papers.ssrn.com/sol3/papers.
Ayoib Che-Ahmad June 30, 2014
Knowledge Requirement and cfm?abstract_id=2461752
Rose Shamsiah
Fraud Risk Assessment
Samsudin
Best Practices in Conducting
Financial Investigations in a Godwin Emmanuel http://papers.ssrn.com/sol3/papers.
June 10, 2014
Cashed-Based Economy & Oyedokun cfm?abstract_id=2448427
Tax Implications
Roles of Financial Experts https://gupea.ub.gu.se/bit-
and Information Technology Ms. Ruchi Dube 9-May-2014 stream/2077/35770/1/gu-
In Financial Fraud Deterrence pea_2077_35770_1.pdf

CMA DOSSIER
Name of the topic Author Reference with date Link
The Impact of Forensic Research Journal of

Eyisi A. S. and Ezuwore http://iiste.org/Journals/index.php/
Auditors in Corporate Finance and Accounting
C. N. RJFA/article/view/12353/12728
Governance Vol.5, No.8, 2014
Effect of Forensic Accounting

Research Journal of
on the Financial Performance Odelabu Adedire http://www.iiste.org/Journals/index.
Finance and Accounting
of Commercial Banks on Temitope php/RJFA/article/view/12375/12736
Vol.5, No.8, 2014
Nigeria
Obstacles to Integrating Proceedings of Eurasia http://www.wbiworldconpro.com/

Forensic Accounting in the Abdullah Al-Hadrami and Business Research uploads/turkey-conference-2014/
Accounting Curriculum: The Sutan Hidayat Conference 16 - 18 June accounting/1402806369_105-
Case of Bahrain 2014 Abdullah.pdf
http://www.davidpublishing.
Forensic Auditing Techniques Journal of Modern
Cletus O. Akenbor com/davidpublishing/
and Fraudulent Practices of Accounting and Auditing,
Uwaoma Ironkwe Upfile/5/6/2014/2014050607143898.
Public, Institutions in Nigeria April 2014
pdf
9th Annual Symposium

http://www.albany.edu/
Fraud Detection through Sachin Lala, Manish on Information Assurance
iasymposium/proceedings/2014/15-
Routine Use of CAATTs Gupta, and Raj Sharman (Asia14), June 3-4, 2014,
LalaEtAl.pdf
Albany, NY
Fraud Education: A Module- Sean Andre BUSINESS EDUCATION & http://www.theibfr.com/ARCHIVE/

Based Approach Aaron Pennington Becky ACCREDITATION Volume BEA-V6N1-2014-revised.
For All Business Majors L. Smith 6 Number 1 2014 pdf#page=83
Global Journal of
An Evaluation of Forensic
Management and
Accountants to Planning Emma Ik Okoye http://papers.ssrn.com/sol3/papers.
Business Research, Vol.
Management Fraud Risk D.O. Gbegi cfm?abstract_id=2238480
13, Issue 1, Version 1.0,
Detection Procedures
2013
Building a Registered Business Economy http://en.cnki.com.cn/Article_en/

XU Dongxia,XU Qianqian
Forensic Accountant System 2013-03 CJFDTOTAL-JJSY201303040.htm
Forensic Accounting (A Great

Weapon Against Accounting http://papers.ssrn.com/sol3/papers.
H. D. Pawar February 24, 2014
Frauds and Malpractices in cfm?abstract_id=2400574
Corporate World)
European Journal
The Impact of Forensic A. O. Enofe http://www.iiste.org/Journals/
of Business and
Accounting on Fraud P. O. Okpako index.php/EJBM/article/
Management
Detection E.N. Atube viewFile/8063/8602
Vol.5, No.26, 2013
Global Trends in Financial http://mak.trunojoyo.ac.id/

Dr. Mahua Biswas
Forensic Accounting In Crimes in the New wp-content/uploads/2014/04/
Kiran G Hiremath
Indian Perspective Economies P09_Forensic-accounting-in-Indian-
Shalini R
2013 perspective_Mahua-Biswas1.pdf

Day & Date Foundation Course Examination

Sunday,

21st September, 2014.

Sunday,
21st September, 2014.

Examination Fees

US $ 60

Agartala, Ahmedabad, Akurdi, Allahabad, Asansol, Aurangabad, Bangalore, Baroda,
Berhampur(Ganjam), Bhilai, Bhilwara, Bhopal, Bhubaneswar, Bilaspur, Bokaro, Calicut, Chandigarh, Chennai,
Coimbatore, Dehradun, Delhi, Dhanbad, Durgapur, Ernakulam, Faridabad, Gandhidham, Ghaziabad, Guwahati,
Hardwar, Howrah, Hyderabad, Indore, Jaipur, Jabbalpur, Jalandhar, Jammu, Jamshedpur, Jodhpur, Kalyan, Kannur,
Kanpur, Kolhapur, Kolkata, Kota, Kottayam, Lucknow, Ludhiana, Madurai, Mangalore, Mumbai, Mysore, Nagpur,
Nasik, Nellore, Noida, Panaji (Goa), Patiala, Patna, Pondicherry, Port Blair, Pune, Rajahmundry, Ranchi, Rourkela,
Salem, Sambalpur, Shillong, Siliguri, Solapur, Srinagar, Surat, Thrissur, Tiruchirapalli, Tirunelveli, Trivandrum,
Udaipur, Valsad, Vashi, Vellore, Vijayawada, Vindhyanagar, Waltair and Overseas Centres at Bahrain, Dubai and
Muscat. (If no examination centre is available at a particular location, examinees will be accommodated at the
nearest Centre available)

All authors are requested to keep to the word limit of 15002000 words for articles. Those who have already sent their articles are
also requested to revise their articles and send them to us within the word limit.
INSTITUTE NEWS
Eastern India Regional Council
South Odisha Chapter of Cost Accountants
T he Chapter organized an evening talk programme

with participation of students and members on July
19, 2014 on the theme Union Budget-2014. CA Amar
Kanta Padhy, FCA, being the chief guest discussed on
Union Budget, 2014 and also the relevant changes sec-
tionwise in Income Tax, Service Tax, and other Taxes.
CMA N.C Kar, chairman of the chapter, pointed out
the disparities of the Budget, 2014 and expressed his dis-
satisfaction for FDI in defence sector. He too discussed
on the new changes in the Budget. CMA K Srinivas
Rao, treasurer of the chapter elaborated on the same and
CMA A.K. Patro, vice - chairman of the chapter con-
cluded with a vote of thanks.
T he Chapter celebrated the 68th Independence Day

and hoisted National Flag amidst students, members
and staffs. CMA N.C.Kar and CMA A.K. Patro, Chair-
man and Vice-Chairman of the Chapter were present
on the occasion. Shri Sunil Kumar Samantaray and Shri
Haramohan Pannigrahy, senior faculties of the Chapter
delivered their speech on the importance of Independ-
ence Day, the freedom struggle and present prospects of
our Nation.
Northern India Regional Council

Chandigarh-Panchkula Chapter of Cost Accountants
T he Chapter organized the first meeting of the Na-

tional Advisory Committee in coordination with
NIRC, New Delhi on August 9, 2014. CMA Balwinder
Singh, former council member conducted the technical
session and detailed presentation of cost rules in various
industries. CMA Vijender Sharma, chairman, NIRC
presided over the function and demanded the new Cost
Rules 2014 to put into abeyance till the committee sub-
mits its report along with the continuation of the exist-
ing rules. CMA Mukesh Kumar Gupta, chairman of the
chapter and Member National Advisory Committee of
the Institute compiled and consolidated all the sugges-
tions and feedback received from members. CMA K K
Sinha, secretary and CMA H K Sharma vice chairman
proposed the vote of thanks.

Southern India Regional Council
T he Region celebrated the 68th
Independence Day at CMA
Bhawan. CMA H Padmanabhan,
Trivandrum Chapter of Cost
Accountants
pendence Day on August 15, 2014.
CMA Joseph Louis, chairman of the
Chapter hoisted the National Flag
Chairman, SIRC, CMA Ch Ven- and CMA S Hariharasubramanian,
kateswarlu, Vice Chairman, SIRC,
CS Baiju Ramachandran, Chair-
T he Chapter conducted a Profes-
sional Development Programme
on July 27, 2014 on the theme Risk
vice chairman of the chapter, CMA
S Veerapudran, secretary, Managing
man, SIRC, ICSI, students, staff Committee members as well as stu-
Management in Banking Industry.
members were present on the occa- dents and staffs participated in the
CMA Isac Kutty M.K, Professional
sion and hoisted the Flag. CMA M occasion.
Development Committee Chairman
J Gopalakrishnan, Past Chairman, welcomed the gathering and Guest
SIRC, CMA M Gopalakrishnan, Speaker, CMA Vinod Chandrase-
Former President, ICAI, CMA kharan, ACMA, CAIIB, FCFA, Asst.
S Ramanathan, Past Chairman, General Manager, National Bank for
SIRC addressed the huge gather- Agriculture and Rural Development
ing. The Independence Day Cele- elaborately discussed various risks
bration was followed by Motivating associated with organizations and
and Personality Development Pro- steps involved in eliminating them.
gram for the students conducted by CMA Veerapudran S., secretary of
an expert from the field and it was the chapter concluded the meeting
held as a part of Student Develop- with a proposed vote of thanks. The
ment Program. Chapter celebrated the 68th Inde-
Bangalore Chapter of Cost Accountants
T he Chapter organized a Professional Development

meet on July 3, 2014 on the theme Uploading
Data of Sales & Purchases To The Website of Commer-
cial Tax Department and Latest VAT Related Issues or-
ganized by Dr. B.V. Murali Krishna, Joint Commissioner,
Commercial Taxes (e-Audit Unit), Commercial Tax De-
partment, Government of Karnataka. On July 11, 2014,
a discussion was made on Union Budget 2014 An
Analysis. Shri M.V. Sridhar, Management Consultant,
on Indirect Taxation and Shri K. Gururaj Acharya, Di-
rector, State Bank of Mysore, on Direct Taxation were on August 2, 2014. On August 13, 2014, Prof. R. Madh-
the speakers on the discussion. On July 13, 2014 there waraj, Management Consultant, discussed on Corporate
was a Practitioners Meet on Companies (Cost Records and Enterprise Governance. On August 1, 2014, a discus-
and Audit) Rules, 2014 led by CMA M. Gopalakrishnan, sion on Audit of Cooperative Societies under Karnataka
past president of the Institute.Various Investor Awareness Co-Operative Societies Act, 1959 was held. CMA Suresh
Programmes had been conducted by the chapter in the R. Gunjalli, Chairman-Practitioners Forum, led the dis-
months of July and August 2014 in association with the cussion. On August 9, 2014, a workshop on Karnataka
Registrar of Companies, Karnataka. On July 26, 2014, Value Added Tax (K-VAT) was organized. Shri T. Srikan-
CMA G.N. Venkataraman, past president of the insti- ta Rao, Partner, RCE & Co., Shri K.S. Kamalakara, Cost
tute, deliberated his speech on Investment Formalities Accountant, and Shri B.V. Ravi, Joint Commissioner,
and Redressal Mechanism. CMA Dr. B.Venkatachalam, Commercial Tax Department, spoke on Recent Devel-
Managing Director, M/s Hexagon Capital Markets Ltd., opment in K-VAT, on VAT audit procedure, and on In-
briefly discussed on rights and liabilities of The Investor put Tax Credit Policy respectively. On August 15, 2014
the Chapter celebrated the 68th Independence Day.

INSTITUTE NEWS
Western India Regional Council

Pimpri-Chinchwad-Akurdi Chapter of Cost Accountants
T he Chapter organized seminar on Independent

Directors Roles and Responsibilities under Com-
panies Act 2013 on June 21, 2014. The Guest Speaker,
CS Luv Tanwani, Senior Executive - Legal,Thermax Ltd
covered various aspects viz. Role and Responsibilities of
Independent Directors, Clause 49 of listing Agreement,
Appointment , selection, remuneration etc. On July
19, 2014 the Chapter organized seminar on Budget
Changes and Professional Development. Guest Speak-
ers, CMA Ashok Nawal and CMA Manoj Malpani in
the technical session discussed on various changes in
Indirect Taxation and Direct Taxation respectively spec-
ified in the Budget.
KIND ATTENTION MEMBERS! NON-RECEIPT OF THE MANAGEMENT

Annual membership fee for FY 2014-15 became due for payment w.e.f. ACCOUNTANT JOURNAL
1st April 2014, the last date of which is 30th September 2014.
This is for the information of members who fail to receive
Members are requested to kindly make payment of their prescribed the management accountant journal despatched to them
membership fee without waiting for the last date of payment. either due to un-intimated change of address or postal
problems. Such addresses of the members whose journals
KIND ATTENTION! have been returned undelivered are regularly hosted on the
website of the institute (www.Icmai.In) under the journal
Members are hereby requested to intimate the section.
Transaction ID, Date of payment, amount deposited and
membership number to membership@icmai.in and Please inform the membership department immediately
finance.arijit@icmai.in for membership fee payments any address update to ensure regular and timely delivery of
made through Bank by NEFT. journals to you. Members can also update their addresses
In case of payments made directly by organizations to online in the members section. The new address gets
the Institute's bankers on behalf of the members, the automatically updated in the centralized data base of the
details of the same may also be intimated to the above institute, from where the journal mailing list is prepared.
mentioned mail IDs as soon as the payment is made by Any queries or complaints in this regard can also be sent by
the organization concerned. email at journal@icmai.In.
DIRECTORATE OF ADVANCED STUDIES

Notification
The Directorate of Advanced Studies has extended the date for enrolment to the Diploma in Information System Audit and Control 2nd batch to
30th September, 2014. For further details please see the website www.icmi.in or contact the Directorate at the following address.
CMA Dr P S S Murthy, Director (Advanced Studies)

The Institute of Cost Accountants of India, Hyderabad Centre of Excellence
Plot No 35, Financial Disrtict, Nanakramguda Village, Gachibowli, Hyderabad-32
040-23002555, Mobile: 9849422844
E-Mail:advstudies.murthy@icmai.in

THE INSTITUTE OF COST
ACCOUNTANTS OF INDIA
(Statutory body under an Act of Parliament )
MANAGEMENT ACCOUNTANCY
EXAMINATION TIME TABLE & PROGRAMME DECEMBER 2014
Wednesday Wednesday Thursday Thursday Friday
10th December, 2014 10th December, 2014 11th December, 2014 11th December, 2014 12th December, 2014
09.30 A.M to 12.30 P.M 02.00 P.M to 05.00 P.M 09.30 A.M to 12.30 P.M 02.00 P.M to 05.00 P.M 09.30 A.M to 12.30 P.M
Management Advanced Management Industrial Relations & Marketing Organisation & Economic Planning &
Accountancy Techniques Personnel Management Methods Development
EXAMINATION FEES
Per Group Rs 2500/-
1.(a) Application Form for Management Accountancy of Advanced Studies, Plot No. 35, Financial District,
Examination is available from Directorate Nanakramguda Village, Serilingampally Mandal,
of Advanced Studies, The Institute of Cost Gachibowli, Ranga Reddy District, Hyderabad.
Accountants of India, Hyderabad Centre of
Excellence, Plot No. 35, Financial District, 5. E xamination Centres: Adipur-Kachchh(Gujarat),
Nanakramguda Village, Serilingampally Mandal, Agartala, Ahmedabad, Akurdi, Allahabad, Asansol,
Gachibowli, Ranga Reddy District, Hyderabad on Aurangabad, Bangalore, Baroda, Berhampur(Ganjam),
payment of Rs 50/- per form. Bhilai, Bhilwara, Bhopal, Bhubaneswar, Bilaspur,
Bokaro, Calicut, Chandigarh, Chennai, Coimbatore,
(b) Students can also download the Examination Form Cuttack, Dehradun, Delhi, Dhanbad, Durgapur,
from ICAI Website at www.icmai.in. Ernakulam,Erode, Faridabad, Ghaziabad, Guwahati,
Hardwar,Hazaribag, Howrah, Hyderabad, Indore,
2. Last date for receipt of Examination Application
Jaipur, Jabbalpur, Jalandhar, Jammu, Jamshedpur,
Form without late fees is 10th October, 2014 and with
Jodhpur, Kalyan, Kannur, Kanpur, Kolhapur, Kolkata,
late fees of Rs 300/- is 20th October,2014.
Kota, Kottayam, Lucknow, Ludhiana, Madurai,
3. Examination fees to be paid through Bank Demand Mangalore, Mumbai, Mysore, Nagpur, Naihati, Nasik,
Draft of requisite fees drawn in favour of The Institute Nellore, Neyveli, Noida, Panaji (Goa), Patiala, Patna,
of Cost Accountants of India and payable at Kolkata. Pondicherry, Pune, Rajahmundry, Ranchi, Rourkela,
Salem, Sambalpur, Shillong, Siliguri, Solapur,
4. Students may submit their Examination Application Srinagar, Surat, Thrissur, Tiruchirapalli,Tirunelveli,
Form along with the fees at Directorate of Advanced Trivandrum, Udaipur, Vapi, Vashi, Vellore, Vijayawada,
Studies, The Institute of Cost Accountants of India, Vindhyanagar, Waltair , and Overseas Centres at
Hyderabad Centre of Excellence, Plot No. 35, Financial Bahrain, Dubai and Muscat.
District, Nanakramguda Village, Serilingampally Mandal,
Gachibowli, Ranga Reddy District, Hyderabad. Any 6. A
candidate who is completing all conditions will only
query in this regard may be addressed to Directorate be allowed to appear for examination.

(Statutory Body under an Act of Parliament)
ISSN 0972-3528 Registered KOL RMS/139/2013-2015
Publication date: 10 September 2014 RNI 12032/66

Fraud Accounting

Uploaded by

Fraud Accounting

Uploaded by

SPECIAL FOCUS

The Institute of Cost Accountants of India

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 3

SEPTEMBER 2014 VOL 49 NO. 9 `100

The Management Accountant,

PRINTER & PUBLISHER

4 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

118 70 Taxation issues in

The Management Accountant technical data Advertisement rates per insertion

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 5

Greetings! Forensic accountants

6 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

The Institute of Cost

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 7

INSTITUTE PREPARED TO PLAY

Companies (Cost Records and Audit) Rules 2014

8 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 9

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Issue months Themes Subtopics

Uniqueness of Municipal Accounting

Directorate of Research & Journal

14 THE MANAGEMENT ACCOUNTANT JULY 2014 www.icmai.in

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 15

16 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

F ORENSIC accounting, fo-

actual or anticipated disputes or lit- The need for forensic accounting

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www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 19

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E CONOMIC and account-

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 29

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Forensic Accounting and Auditing Framework

Accounting Auditing and Assurance Investigation Science

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 31

Such pressures are accepted as the worst

Nobody has suffered as a result of this; holder in developing economies

32 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 33

4 years. Losses incurred by banks

34 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 35

took place for a long period of

36 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 37

38 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

Consider Terms of the Yes

Prepare Purpose, Corrective, Preventive

Identify Investigation Review of documents

Expand Final Forensic

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 39

WHITE COLLAR CRIME AND ITS

I N this paper financial

40 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 41

individuals. These ineffective needs TABLE 1

42 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

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44 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

SUBSCRIPTION OF 'RESEARCH BULLETIN'

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 45

WHY BANKS SHOULD

46 THE MANAGEMENT ACCOUNTANT SEPTEMBER 2014 www.icmai.in

Forensic accounting: A brief

www.icmai.in SEPTEMBER 2014 THE MANAGEMENT ACCOUNTANT 47