Evolution of Accountancy and costing is quite separate phenomena of the history. Both were never inter-mingled to each other in initial period of their of evolution. Accountancy simply means to write financial transaction and provide summery of the same. While costing is a process of determining various components of a product to ascertain price of a product.
But due to heavy use of mathematics in both domains, firm were not keeping separate department for both domain. And Costing is always blended in Accounts department though its nature of work is totally different than accounting. Even the person doing the costing was not given a unique name like “Cost Specialist” or “Costist” or “Cost Expert” or “Costecian”. They were tagged with “Accountant” which was called Cost Accountant. Tagging of cost specialist with Accounting was significant turning point from where its unique nature mixed up with accountancy and lost its separate identity.
History of Costing:
During the first word war, it was developed and made regulated profession during era of industrialisation in developed countries like UK, Canada and Europe. In order to regulate costing profession during fifties or forties, some prominent institutions were open in various countries. List of such institutes are given below;
The Institute of Cost Accountants in England (Name Changed so many times)
The National Institute of Cost Accountant, US
The Institute of Cost & Works Accountants of New Zee Land
The Institute of Cost and Works Accountants of Australia
The Institute of Cost and Works Accountants of India.
The Institute of cost and Works Accountants of Canada
Above is tentative list of costing bodies in the world during fifties. After industrialisation and open market policy of all the developed countries, costing progression was no longer kept as regulated and it was completely deregulated. Because during state controlled economy, costing of product or services was significant to monitor effective pricing, distribution or supply of goods or services to serve public in general. Each state was judged on performance of public welfare with regards to supplies and distributions. Most of the governance was based on public distribution and supplies.
Various tools of Costing were developed by costing profession to render their serviced some of majors tool are as following;
In the era of open market, commercial activity was completely handed over to public and only for some strategic and essential goods, commercial activity is being carried out by any government. Due to such drastic changes in the nature of state functioning and changes in the nature of economy, costing profession was highly affected and all the governments across the globe deregulated costing profession in some manner. Western world completely removed statutory compliance with regard to costing and pricing.
Outcome of changes in nature of economy forced the costing bodies to change nature of costing and its activity because costing was required as internal function in business organisation. State has no things to do with costing or pricing of the product. Hence, cost profession was no longer required to be regulated .As per the policy of respective government; all cost bodies around the world changed their name as following;
Chartered Institute of Management Accountants, UK
The Institute of Management Accountants, US
The Institute of Certified Management accountant Australia
Society of Certified Management Accountants, Canada
How management Accountancy developed?
Credit goes to the costing bodies only for development of management accounting. Due to non-existence of costing as independent function in any organisation, the costing bodies tried to explore some new name and the same should be according to best suited to functions rendered by some group of Accountants for businesses exclusively.
Origin point of management accounting is use of accounting information to provide inputs for business decisions .But in any organisation generation of non-accounting information is substantial than accounting information like production system, HR Sales & marketing, Technical information.
Costing profession tried to embrace all the non-accounting information and used with accounting information to develop business tools for assisting business organisation.
Practically, in each business organization, use of all type of information (Financial and Non-Financial) to take business decision is natural. But cost accountant found that such use of financial information with non-financial is prevailing everywhere in all type of business entity. On the the other hand, corporatisation of all sole proprietorship or partnership firm, word management was referred to owners of entity. Hence, accountants who are working for management is called “Management Accountant”.
IFAC has also specifically distinguished general accountant and Accountant which are working exclusively for business. IFAC rechristened its management accounting committee as” Committee for Professional Accountants in Business “
Scenario of Costing in India:
Costing in India is regulated by the Institute of cost accountant of India (ICWAI). ICWAI maintained all the costing standards and statutory functions. Indian economy also underwent drastic changes in its nature and structures on the same pattern on which other developed country faced changes in their economy.ICWAI also tried to follow patter of other costing bodies and liked to rename its name with tag of word “Management accounting”. Due to being statutory body for costing and management accounting is nowhere can be regulated (except few SAARC countries), Indian government did not permit to rechristened its name with word “management “.
Now situation for costing profession has become more challenging because mandatory costing and cost audit was reduced to very few corporates which ultimately resulted in curtailment of statutory functions of costing profession. This is new challenges costing profession is facing .But the most challenging problem is yet to come for costing profession is sharing professional scope with CA when mandatory costing and cost audit will be completely removed from Indian corporate.
The institute of Chartered Accountant is sole professional body to regulate chartered accountancy which is no things ,but purely accountancy profession and costing is not related with accountancy as per functions of both domain are unique .
An Ideal situation when entire costing profession is de-regulated: Like many western country, Indian costing professions will be merged with mainstream accounting profession (That is CA in India).All the costing bodies across the globe has changed their qualification name and its function. Now, they are running MBA in Management accounting to anyone who is interested in management accounting.
CIMA is biggest example of such transformation in UK. It was originally costing institute only. It was purely rendering costing requirement of UK in the history. Over period of time, it changed its name so many times to make its different than main stream accountant. Finally it ended with mingling with AICPA USA, which is biggest contributor for development of CPA (Full time Accountancy profession).So; CIMA marketed management accounting all over the world and left all the statutory functions to CA or ACCA in UK.
But costing profession in India cannot be transformed like CIMA UK as CIMA has brand of UK (a developed nation) and English country (Widely accepted for global employability ).Once statutory function is removed from CWA, assurance of self-employment after completing the same will be Nil. All those part-timer (mostly working in accounts and finance domain in Industries) doing CWA will have better option to shift IGNOU or some Distance MBA.
Another option for costing profession is merger of CWA and CA like unification of accounting designations in Canada. But it is almost impossible as ICAI does not want to share a pie of its brand name with all-time rivalry sibling .Only government can force CA to merge with CWA .Otherwise , ICAI may never be interested to take over costing profession even. (Merger is win-win for both parties which is better, while take over is one sided influence).
Consolidation of Management Accountancy into Accountancy.
All major costing bodies around the world have moved towards consolidation of short lived management accounting with main stream accountancy profession. Recent case of Canadian accounting profession where management accounting reached climax of its uniqueness and maintained its separate identity from other accountants. But finally, Canadian government realised there was no use of fragmented group of Accountant and all are rendering the same serves to public in general. Unification of CA, CMA and CGA were formally taken off and resulted CPA, which is elaborated as “Chartered Professional Accountants.
Though CPA seems to be win-a win for all accountants .Practically, it was loss for management accounting because CMA as uniqueness in its name for subject specific was lost due to merger scheme.
Another accounting body, ACCA in UK, which was solely made for accounting profession, has discovered business accounting in costing and management accounting. ACCA is now selling “Business Accounting “to the entire world which is nothings, but management accounting. There are so many cases of instutionalisation of consolidation of management accounting with main stream accountancy profession (Some major Case is CPA Australia New Zeeland &CIMA).
Previously, most of management accounting functions were done MBA (Finance) graduates and B.tech in the case of technology driven company’s .But accountants started involving in such functions and provided good outcomes due to being oriented towards toward numbers. Business community never feel necessary to develop a separate class of accountants for management accounting.
Even currently, engineer’s graduates and other non-commerce graduates are working for management accounting.
Hence, management accounting was created by costing bodies and made it separate from Accountancy profession (which is demerger) and finally merged with accountancy.
Raj Kumar Gupta