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DIRECTORS REPORT 2004 - 2005
 

 

To the Members of ICAI Accounting Research Foundation 

The Directors have pleasure in presenting the Sixth Annual Report of the ICAI Accounting Research Foundation (ICAI ARF), together with the Audited Balance-sheet, Income and Expenditure Account and Cash Flow Statement for the Financial Year ended 31st March 2005.

 The Institute of Chartered Accountants of India (ICAI) promoted ICAI ARF with the main objective to make it an academy for imparting, spreading and promoting knowledge, learning, education  and understanding in the various fields related to  the profession of accountancy.  Recognizing that not enough emphasis has been laid, so far, in India on research in the areas of accounting, auditing and other related disciplines, and the level of research needs to be raised at the international level, the board has decided to support  research project of contemporary national and international significance in the aforesaid areas and has extended an open invitation to various institutions, research bodies, research scholar and the practitioners.  As one of the many initiatives, the board has also decided to institute research chairs on the topics of high relevance, for example Accounting and Accountability in Government, Corporate Governance, Financial Reporting , Corporate Social Reporting, Environmental Accounting , Audit Committee. To begin with,  the board has decided to set up three chairs. 

Performance Highlights:

 The ICAI ARF has completed another successful year, 2004-05 and has actively pursued the objectives of establishing the Foundation as a core research body with facilities to undertake research in the areas of Accounting, Auditing and other related disciplines. In financial terms, during the year the revenue from the research activities has however gone down from Rs.167 Lakhs in the year 2003-04 to Rs. 105.32 Lakhs  for the reason that major portion MCD Project was completed in the year 2003-04 and that the scheduled completion of the new research project i.e. KMC Project  has been extended to July 2006 instead of July 2005,  for the reasons attributable to KMC. As a result of the above the revenue surplus during the year 2004-05 was about Rs. 46 lakhs as  compared to about Rs. 99 Lakhs during 2003-04. A sum of Rs. 40 Lakhs has been appropriated towards building reserve during the year.

 
Accounting, Financial and Management Reforms in Urban Local Bodies

 Municipal Corporation of Delhi Project (MCD):  The first phase of the project taken up in March 2002, had been successfully completed in November 2003.  During 2004, ICAI ARF assisted MCD in preparing and presenting their 2003-04 financial statements.  Additionally, ICAI ARF was also involved in comprehensively restructuring the budget heads and in refining the accounting process in the various Zones of the MCD.  This work included a number of training programme which were conducted by the team of ICAI ARF.  The remuneration received for this application of the concepts earlier developed, was Rs.50 lacs (plus service tax).

 In the early 2005, the MCD revised the structure of the second phase of the original agreement of 2002.  The earlier agreement had specified a compensation of Rs.1.5 crore for phase II.  Keeping in view the work done by ICAI ARF during 2004, the MCD issued a separate work order for the balance of Rs.1 crore, for a different task, as advised by ICAI ARF itself.

 The task now being done by ICAI ARF consists of handholding, and assistance in setting up the Financial Management and Budget Office (FMBO). This also involves preparing a guidance document for budget monitoring and analysis, the preparation of certain manuals, and assistance in the finalisation of the 2004-05 accounts. This phase was supposed to be concluded on 30th June, 2005, but due to certain administrative reasons on the part of the MCD, it is now expected to be concluded by the 31st October, 2005.

 Kolkata Municipal Corporation Project (KMC):  The Project was taken up in July, 2004 and is still continuing for the current year.  During the period under report, the nature of  contribution of ICAI ARF was to assist KMC in the preparation of its final accounts of 2003-04, carrying number of studies on business processes, conducting  training programme for capacity building, etc.  In the work relating to final accounts, ICAI ARF has provided a number of technical inputs which assisted KMC in dealing with a large number of legacy problems. 

 During the currency of the year, the team of ICAI ARF has successfully completed the study on business process reengineering of KMC, conducted a top management training programme, as well as several others, and is continuing to work on other items in accordance with the terms of reference of KMC Project.  The work of KMC was supposed to have concluded on 30th June, 2005 but has been extended till March, 2006.  The primary reason for the delay was the local government election in West Bengal, because of which practically no work could be done for approximately two and a half months.  Despite the new city government in place, and also with a change in the top management of the KMC, matters are still undergoing at a slow pace.  It is expected that normal routine would resume by mid September.

 In keeping with its stated objectives, the ICAI ARF conducted a number of seminars on municipal accounting all over the country, which were attended by a large number of chartered accountants. It is also heartening to note that senior officers of the Union Government have commented publicly that it was the pioneering efforts of the ICAI ARF in MCD which gave rise to a movement in the whole country for financial and accounting reforms in urban local bodies as well as different agencies of the government itself.  Members of the ICAI have benefited from the fact that States such as West Bengal, Rajasthan, Gujarat, Haryana and Karnataka have now issued their requirements for CA firms to do the work of conversion of accounts in the urban local bodies of those states.      

 During the year, the ICAI ARF has initiated/ continued with  the following research projects:-

 1.  Legal protection of Intellectual Property Rights in Information Technology Industry:   The research project titled “Legal protection of Intellectual Property Rights in Information Technology Industry”  under the Infosys Fellowship Research Scheme is underway. Certain changes have been contemplated in the Infosys Fellowship Scheme Agreement, with a focus to enlarge the scope of the agreement to include the research scholars pursuing Ph.D from other reputed Universities, to become eligible under the Infosys Fellowship Research  Programme. 

 2. Research Study on Recognition, Measurement and Disclosure issues in Bio-Technology and other life science companies, Information Technology (IT) Companies and advertisement companies: A Group on ‘Recognition, Measurement and Disclosure issues in Bio-Technology and other life science companies, Information Technology (IT) Companies and Advertisement Companies” was set up with the representatives from the office of Comptroller & Auditor General of India, The Institute of Chartered Accountants of India, Technology Development Board, Technology Networking and Business Development Division (CSIR), Consultants Development Council, and the Industry. Based on the presentation made by the leading companies in the areas, the Study Group has circulated a questionnaire covering accounting and disclosure issues to large number of companies. The response received is being collated, analyzed and examined together with accounting policies and practices being followed in other countries. The study is expected to be completed during the course of the current year.  

 3. Developing a code of Governance for Non-Profit Organisations (NPOs): The study on Code of Governance for Non Profit Organisation (NPOs) Sector  is underway.  The draft of the study prepared by Investment Information and Credit Rating Agency of India Ltd. (ICRA) on the above subject is under consideration by the Expert Group of ICAI ARF.  The study when completed, would suggest the model code of governance for such organisations and would be brought out as a research publication under ICAI ARF.

 4.  Electronic Commerce and Direct Taxation: The study on Electronic Commerce and Direct Taxation commissioned last year is likely to be completed shortly.  The final draft of the study is under consideration by the Expert Group of ICAI ARF.

 5. Financial and Accounting Reforms, Capacity Building and Related Strategies:  ICAI ARF joined the ICAI as co-partner for submission of proposals for carrying out research in the area of financial statements and accounting reforms to the Small projects Facility programme (European Union Projects). Out of the above proposals submitted, the proposal titled “Financial and Accounting Reforms, Capacity Building and Related Strategies” has been accepted and is currently being pursued together with the ICAI.  The project is progressing as per the schedule envisaged therein. As per the scope of the project, a detailed study on nine shortlised  urban local bodies on development of institutional framework along with strategies directed towards  building capacity for undertaking the suggested reforms has been carried out. As a precursor to  this project, the ICAI ARF has financed a project on evaluating the capacity for financial and accounting reforms in the cities of Amritsar, Jalandhar, Ludhiana, Chandigarh, Shimla, Delhi, Kolkata, Chennai, Mumbai, Nasik, Baroda and Ahemdabad.  The research report was circulated to various concerned agencies including the World Bank and Asian Development Bank.

 6. Impact of International Accounting Standards/ international Financial Reporting Standards on the wider stakeholders:  Oxford University of Business School (Accounting) has sent a request  to ICAI ARF for collaborating with them for a research project on Impact of International Accounting Standards/ international Financial Reporting Standards on the wider stakeholders . An Expression of Interest in principle has already been communicated by ICAI ARF.

 ICAI ARF has launched its own website (www.icaiarf.org), to share and spread the research initiatives being undertaken under its aegis.

 In order to promote research in accounting, auditing and allied areas, ICAI ARF has extended a general invitation to Indian Universities, research organisations, management institutions and research scholars for making research proposals to be assisted by  ICAI ARF.  A comprehensive format for expression of interest has also been hosted on the website of ICAI ARF. In particular, all leading universities, management institutions, and research organisations in the country were invited to carry out a research on ‘Impact of Accounting Standards on Stock Markets’.  Expression of interest received is under consideration by the Expert Group of ICAI ARF.

 ICAI University:

 With objectives of providing Commerce Education bench marked at International Standards and promoting Research in Accountancy, ICAI ARF, as per the initiatives taken by the ICAI, decided to set up/ sponsor ICAI University as a Private University at Jaipur under the Rajasthan Private Universities Ordinance 2004.  A letter of intent was issued to ICAI ARF in December 2004 and a land measuring 40.83 hectares (100 acres) was allotted to ICAI ARF for setting up of the University.  For this purpose ICAI ARF has also created an Endowment Fund with Government of Rajasthan.  The possession of the land was taken on 27th January, 2005, and Foundation Stone was laid on 3 February, 2005 by Hon’ble Chief Minister of Rajasthan. With the above, a sum of about Rs. 5.55 Crores was spent (Land cost including lease rent- Rs. 3.54 Crores and Endowment Fund-  Rs. 2.00 Crores). In February, 2005 the Government of Rajasthan considered certain amendment to the law relating to Self-Financed Universities in the light of the judgement of the Hon’ble Supreme Court in professor Yashpal Vs. State of Chattisgarh. The Ordinance issued by the Government of Rajasthan could not be converted into an Act within the stipulated period and lapsed. Therefore, the Letter of Intent issued also lapsed. The Government of Rajasthan has accordingly requested to apply afresh under the new Act. The Ministry of Company Affairs, Government of India vide their letter dated 1.4.2005 advised ICAI to prohibit the use of name of ICAI or ICAI ARF by the proposed University and not to provide financial assistance from the funds of ICAI or ICAI ARF.  On consideration of this, the ICAI decided to respond to the Ministry by providing required information/clarification. Further action for implementation of the Project, till the response of the Government is received was suspended.  Response to the Government was sent in April, 2005.  Further queries received vide Ministry of Company Affairs, Government of India letter dated 13.6.200, has also been responded by ICAI vide letter dated 10.8.2005.  The matter is being pursued with the Ministry of Company Affairs, Government of India.

 Future Plans:

 Recognising the fact that considerable efforts are required to promote research in accounting in India, ICAI ARF has taken a number of proactive measures for undertaking applied research, and carrying out research studies.  ICAI ARF contemplates to take strategic initiative to accelerate the process. ICAI ARF would launch a promotional campaign for establishing direct contact with the Universities and other bodies on the one hand, and reaching out to the potential researcher through out the country, on the other. A list of proposed research projects of contemporary national and international significance would be identified and expression of interest invited. In select areas, ICAI ARF may directly undertake research. Possibilities for networking with research organisation of repute, within and outside India would be explored. Series of technical documents are proposed to be published and focussed training programmes organised for dissemination of technical knowledge and skills to the Chartered Accountants and other stakeholders. Initiative for applied research in newer areas on the lines of those taken up under MCD and KMC project would also be taken up.

Conservation of energy, technology absorption, foreign exchange earnings and expenditure:

Conservation of energy: The level of energy consumption is negligible and therefore, there are no matters to report.

Technology absorption:   There are no matters to report. ICAI ARF, as stated earlier, being a research organization, all the functions and resources are devoted towards research purposes. The MCD and KMC  project have been instrumental in building expertise in conversion of accounts to accrual basis and related areas of municipal bodies.

Foreign Exchange earnings & Outgo: There   were no   foreign exchange   earnings   during   the   year. The foreign    exchange expenditure    during    the   year   was Rs. 138108/-.        

Personnel:

 There are no employees on the payroll of the Foundation and the activities are being pursued through a team of consultants and researchers supported by staff from ICAI.

 Director’s Responsibility Statement:

 As required by section 217(2AA), Board of directors confirms that:

 

  1. In the preparation of annual accounts, applicable accounting standards have been followed with no material departure;
  1. We have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Foundation as at 31st March 2005 and of the income and expenditure of the Foundation  for the year ended 31st March 2005;  
  1. We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; and  
  1. We have prepared the annual accounts on a going concern basis.

M/s. P Aggarwal & Associates, Chartered Accountants, the Foundation’s auditors retire at the conclusion of this Annual General Meeting.  They have signified their willingness to accept appointment and have further confirmed their eligibility under 224(1B) of the Companies Act, 1956.

The Board take this opportunity to place on record their appreciation for the continued assistance, support and co-operation received from the Ministry of Company Affairs, Government of India, European Commission, MCD, KMC, Urban Local Bodies of other State Governments, multilateral agencies and other authorities during its course of execution of the research projects and otherwise. The Board also place on record their deep appreciation for the contribution received from Shri N D Gupta and Shri J P Gokhale during the term of their directorship with ICAI ARF.

On behalf of the Board

(Kamlesh S. Vikamsey)

(Chairman)

 

New Delhi

12th  September, 2005  

 

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