COVER STORY
Target Costing: A Tool for Cost Control
-- Falguni R Malaviya
Target costing originated in the Japanese industries in the 1970s. It is a proactive technique of cost accounting and
was adopted to help businesses face stiff competition. The design stage of the product incurs almost 90-95% of the
total product costs. Target costing is done through proper planning of future products to ensure its success, even before it
is offered in the market. The use of design to cost, value engineering and cost reduction techniques are involved in
target costing. It works best when used along with Activity-Based Costing (ABC). This method gives best results when
adopted in assembling firms. Nowadays, firms adopt target costing as a business strategy in order to increase the life of
the product. It aims at cost reduction and has proved very beneficial to Sony and Toyota in increasing their market
share. The firms that adopt target costing lay emphasis on leadership in product and enhancing the market share.
© 2009 IUP. All Rights Reserved.
COSTING
Target Costing: Where Marketing Precedes Manufacturing
-- Ashok Kumar Panigrahi
The process generally followed to sell a product is to
manufacture the product, followed by marketing of the product,
in order to have an effect on its sales. However, can you think of manufacturing a product only after the whole process
of marketing is completed? Yes, now it has been realized by the manufacturers that it is necessary to know the
salability, demand and acceptability of a particular product before it is designed for production. Thus, the traditional costing
system took a reverse shape and the process of first assessing a target price and then designing a product to meet this price
started getting popular. This process is otherwise known as target costing. The concept of target costing is basically a top
down process of setting price, setting profit and at last setting cost. This article is designed to study how this concept of
target costing works, study the steps for its implementation and analyze how it is better than the traditional method.
© 2009 IUP. All Rights Reserved.
HR ACCOUNTING
Human Resources Accounting: A Comprehensive Analysis
-- A Vinayagamoorthy
In India, HRA, as a system, has not been introduced so far: The Companies Act, 1956 does not insist on the
furnishing of any significant mention about HR in the financial statement of companies. Despite the constraints and challenges,
a few public sector undertakings like BHEL, SALE, and MMTC have taken the lead in introducing HRA in their
organizations. It is a welcome trend. At the same time, the application and usefulness of HRA depends on the efforts and
experiments to be made by the practicing managers, accountants, and academicians. Of course, there is no motivating force
behind the adoption of HRA except image building and fascination towards the latest accounting systems. Therefore,
the application of HRA needs support from the professional bodies and the Government.
© 2009 IUP. All Rights Reserved.
BUSINESS ENVIRONMENT
An Appraisal of Factoring Services in India
-- M Yadagiri and R Sridhar
Modern day economies are passing through a phase of conversion, and the service sector is grabbing the share
of agriculture and industry in the Gross Domestic Product (GDP) of the world. The financial services are predominant,
and growing by leaps and bounds in the service sector. Factoring is a novel innovation in services for catering to
the requirements of liquidity in the business, thus providing a new avenue of finance. As an innovative financial system,
it is of immense benefit to industries. To pursue growth objectives, manufacturers and the suppliers conduct
business transactions, partly on the basis of cash and partly on credit, which creates plenty of book debts,
the delayed payments of which may hamper future production and sales. These people can take the help of
factoring services to ensure smooth running of their businesses. © 2009 IUP. All Rights Reserved.
ACCOUNTING STANDARDS
Fair Value Measurement:
How Fair Is Fair Value? With Special Reference to IFRS
-- Yagnesh Dalvadi
By 2011, the Indian corporate world will be adopting International Financial Reporting Standards (IFRS) in place of
the Indian Accounting Standards (IAS). Fair Value Measurement (FVM) and presentation are at the core for all types
of accounting standards. Some of the questions that arise are: Shall we understand that fair value is `reasonably fair'?
Does it have better transparency? Is it very useful to the decision maker? Is it very useful compared to various
historic valuation methods? This article focuses on FVM concepts in IFRS, the challenges in determining the fair value
and reliability of fair value of assets and liabilities presented in financial statements as per IFRS. © 2009 IUP. All Rights Reserved.
ACCOUNTING STANDARDS
Global Accounting Standards for SMEs
-- Lingisetti Venu
With the publication of a standalone standard, such as IFRS for SMEs, the IASB has eased the complexities of
financial reporting for millions of entities across the globe. A brief description of the new standard, its differences with
the prevailing standards and its Indian perspective have been presented in this article. © 2009 IUP. All Rights Reserved.
ACCOUNTING STANDARDS
Valuation of Inventory Under IAS 2
-- Kumar Patwardhan
Inventory constitutes a significant portion of a company's current assets. The valuation of inventory affects both
the profitability and the financial position. Therefore, due to changing business environment, inventory valuation
has undergone many changes the world over. In India, the applicable accounting standard is AS-2. Due to
globalization, Indian companies have to adopt International Accounting Standards. The applicable Accounting Standard is IAS
2. There are certain provisions in this standard which have far-reaching effects on a company's profitability and
financial position. These provisions may affect profitability not only for the current year but also for the years to come.
Though there are certain similarities there are significant differences as well.
© 2009 IUP. All Rights Reserved.
AUDITING
Audit Considerations in an Uncertain Economy
-- Steven Firer
During the past several months, the Global Economy has suffered a significant decline. Companies are falling
like ninepins. Some economists are predicting a prolonged recession. With such drastic changes occurring all around,
the auditorswho are paid handsomely to give their valued opinions on a company's financial statementsneed to
be reminded of the crucial role they play. Some companies are trying to adopt inappropriate accounting practices
resulting in improper recognition of revenues and inflated inventories, and failure to accrue appropriately for contingent
liabilities. In these conditions, the auditors should maintain professional skepticism and status quo should be challenged.
© 2009 This article was first published in July 2009 issue of AccountancySA (www.accountancysa.org.2a). Reprinted
with permission.
SPEECH
Speech by SEC Commissioner
"Principles to Help Guide Financial Regulatory Reform"
Remarks Before the Institute of International Bankers
-- Elisse B Walter
In the past few months, the US financial regulatory system has seen several proposals to modernize the
outdated system. Financial markets have changed over the last 25 years but such changes have not taken place in
financial regulations. The regulatory system should focus on systematic risk, and investors' protection should be taken care in
a balanced and pursued manner. The regulatory system should be restructured to eliminate gaps and enhance the
market transparency. SEC should be authorized to focus on all OTC (Over The Counter) financial derivatives that have
a significant impact on the debt and cash equity securities markets.
© 2009 US Securities and Exchange Commission (www.sec.gov). Speech by Elisse B Walter, Commissioner, US Securities
and Exchange Commission, Conference Co-sponsored by Four Seasons Hotel, Washington, March 2, 2009. Reprinted with permission.
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