TO THE MEMBERS OF ICAI ACCOUNTING RESEARCH FOUNDATION

The Directors have pleasure in presenting the Thirteenth 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 31^st March 2012.

The Institute of Chartered Accountants of India, set up under an Act of Parliament – The Chartered Accountants Act, 1949 - has established ICAI Accounting Research Foundation (ICAI-ARF) in January, 1999, as a Section 25 company - a core research body to promote research in the areas of accounting, auditing, capital markets, fiscal policies, monetary policies and other related disciplines. The ICAI ARF promoted by the Institute of Chartered Accountants of India (ICAI) has accelerated its work programme during the year as an academy for imparting, spreading and promoting knowledge, learning, education and understanding in the various fields related to the profession of accountancy. The ICAI ARF has undertaken many projects involving basic and applied research. The ICAI ARF believes that proper research inputs are necessary condition for raising the level of corporate governance, management, accounting and financial reporting. High quality research projects based on practical experience with theoretical extrapolations would also provide valuable inputs in formulation of policies and implementation thereof at macro and micro levels.

PERFORMANCE HIGHLIGHTS:

The ICAI ARF has completed another successful year, 2011-12, in establishing the Foundation as a core research body in the areas of Accounting, Auditing, Fiscal Laws and Policy, Corporate and Economic Laws and Policies, Economics, Financial Management, Financial Services, Capital and Money Markets and other related disciplines.

Recognizing the impetus required for promoting quality research in the country, the Board has adopted and pursued a multi - pronged action plan to support research projects of contemporary national and international significance in the areas related to accountancy profession. The ICAI ARF has extended an open invitation to undertake research to various institutions, research bodies, research scholars and the practitioners. Focussed advertisements were also put up on the website of ICAI ARF, ICAI, and in the Journal of ICAI ‘The Chartered Accountant’, inviting expression of interest from the members and others to carryout research in the areas of contemporary interest with requisite financial support from ICAI ARF with an option of pursuing the research or for taking up of systematic study in relevant areas. As a consequence, during the year number of research projects have been commissioned to renowned researcher from bodies like IIM Bangalore, Oxford University and other top Institutions and Universities.

New value added projects will continue to be the fundamental part of subsistence of ICAI ARF. Accordingly, projects that would add value and help in spreading, promoting and advancement of various disciplines in the fields of accountancy, auditing, fiscal laws and policy, corporate and economic laws and policies, economics, financial management, financial services, capital and money markets, management information and control systems and other allied fields are being undertaken.

RESEARCH PROJECTS:

The main objective of the establishment of ICAI ARF is to undertake, conduct, foster, promote and provide aid and facilities for prosecuting core, fundamental, empirical, applied and other kinds of research work, projects and studies. The research work undertaken by ICAI ARF has been divided amongst two branches of research, viz., (I) Basic Research, and (II) Applied Research.

The status of major research projects completed during the year and presently undertaken/implemented under basic and applied research is given below along with particulars of proposals that are under consideration:

(I) BASIC RESEARCH:

Basic research is designed to add to an organized body of scientific knowledge and does not necessarily produce results of immediate practical value. It is concerned with formulation of a theory or a contribution to theory. The ICAI ARF involves carrying out basic research projects pertaining to subjects requiring enquiring into problems and issues significant to accounting and auditing and allied disciplines such as economics, finance and business laws through outsourcing research projects by inviting applications from research bodies/scholars and providing them financial assistance. In view of the above, the following projects have been undertaken by ICAI ARF:

1. PROJECTS COMPLETED DURING THE YEAR:

The following research projects undertaken earlier have successfully been completed during the year 2011-12:

• Project on Economic Impact of Quarterly Reporting by Dr. R. Narayanaswamy, Professor, Indian Institute of Management, Bangalore: Dr. R. Narayanaswamy, Professor of the Indian Institute of Management Bangalore (IIM-B) has undertaken this project, under the aegis of the ICAI ARF, to investigate the economic impact of quarterly reporting with a view to re-evaluate the role of quarterly reporting. The study revealed that quarterly reporting did not improve the association between earnings and stock price and generated significant larger trading volumes making stocks more liquid, but led to greater stock return volatility and higher range of stock prices. The study states that quarterly reporting may have resulted in managers becoming amore myopic and opting for accruals in order to present a more favourable picture to the investors and throws light on a number of significant aspects related to economic impact of quarterly reporting.
  

• Accounting Reforms in Transition & Developing Economy by CA. Ayaz. A. Siddiqui: - CA. Ayaz A. Siddiqui has undertaken this project, under the aegis of the ICAI ARF, to investigate the scope of accounting reforms in transition and developing economies, gap analysis, study of international practices and methodology, implementation road map for accounting reforms and corporate governance and to study the government accounting system and impact analysis of accounting reforms etc. The study revealed that accounting reforms are the part of broader Government Reforms, which includes Corporate Governance as well. The study throws light on a number of significant aspects related to government accounting reforms and states that automation of government accounting system can be considered as one of the key step of broader government accounting reforms.

2. ONGOING PROJECTS:
The following research projects have been undertaken/ continuing during the year:

• Wider Impact of IAS/IFRS on Indian Accounting Profession and the Socio Economy:International Comparison with Anglo-America, China and Japan by Dr. Tomo Suzuki, Oxford University: The SAID Business School of University of Oxford, London has taken up this project with the ICAI ARF. The research study aims to comprehensively evaluate the impacts of IAS/IFRS on the Indian accounting professions and the economy, so as to contribute to the establishment of India’s strategy and policy formulation which may held in India converging with IFRS.

• A Study of the processes employed by Indian Companies for encouraging creation of Intellectual Assets and fostering of thriving IPR Culture by CA. Rajesh R. Haldipur: The research project aims to investigate into the processes and practices followed by companies worldwide that have consistently built their IPR asset portfolios, to critically evaluate processes and practices followed by Indian companies in building a portfolio of IPR assets, to identify key factors as well as processes and practices influencing the success rate of creation of IPR assets and to enrich the literature on intellectual asset management in the Indian context.

• Designing a Structural Model for measurement of audit expectation gap with special reference to Tamilnadu State by Dr. S. Rajaram of Kalasalingam University: This proposal aims to provide some insight into the nature and extent of the audit expectation gap in state of Tamil Nadu. The target groups are the auditors, auditees and audit beneficiaries. The audit beneficiaries will be represented by bankers, investors, brokers and general public. The auditees will be represented by company directors and accountants.

• Role of Independent Directors: A case study on Satyam Computers Fiasco by Mr. Ashish Soni: The aim of the project is to understand the role and responsibilities of independent directors in the functioning of any corporate Board, to develop and debate on the circumstance leading to Satyam Computer Services Ltd., corporate governance fiasco, to examine and critically evaluate the role of independent directors in Satyam Computer Service Ltd. The main activities of this research are to analyze and scrutinize the role of independent directors, shareholder activism and the larger fiduciary role of Board of Directors. The target groups are the shareholder/investors and policy makers etc.

3. PROJECT PROPOSALS:
The research studies on the following topics have been approved in principle by ICAI ARF subject to modification in methodology/scope for the research:

• Financial Risk Governance Models among Indian Companies: The proposal was submitted in the prescribed format of ICAI ARF by Dr. P. Krishna Prasanna (Assistant Professor, Department of Management Studies, IIT Madras). The researcher aims to study the business development and growth, particularly in the context of globalised corporate landscape, demand effective financial risk governance at the firm level.

(II) APPLIED RESEARCH:

Applied Research is directed towards the solution of immediate specific and practical problems. It is performed in relation to actual problems and under the conditions in which they are found in practice. The applied research requires systematic study to gain knowledge or understanding necessary to determine the means by which a recognized and specific need may be met.

In view of the above, ICAI ARF has undertaken projects related to conversion of accounts from cash basis to accrual system of Accounting for Municipal Corporation of Delhi (MCD), Kolkata Municipal Corporation (KMC) & Controller General of Accounts (CGA) etc. involving conceptualizing a new accounting system including the incorporation of methodologies and procedures not current in India and same had been successfully completed. The Foundation has also undertaken DFID Project relating to Strengthening Rural Decentralization (SRD) suggesting a detailed methodology and road map for under pinning the issues on a logical framework. In continuation to above, the following projects have further been undertaken by ICAI ARF:

1. PROJECTS COMPLETED DURING THE YEAR:
The following research project undertaken earlier has successfully been completed during the year 2011-12:

• ICAI ARF – Department of Posts Project for implementation of Accrual system of accounting: ICAI ARF had taken up a pilot project for implementation of accrual accounting system in two primary postal units of the Department of Posts, one in urban area and one postal Unit in Rural Area under accounting jurisdiction of Pay & Account Office (PAO), Delhi which have been identified as pilot project. The project has successfully been completed during the F. Y. 2011-12.

2. ONGOING PROJECTS:
The following research projects have been undertaken during the year:

• ICAI ARF – Kerala State Insurance Department (KSID) Project related to "Accounting Reforms in KSID: ICAI ARF has taken up a pilot project for Accounting Reforms in KSID. A consultant team has been appointed by ICAI ARF to undertake the said project.
• ICAI ARF – NHPC Project related to implementation of IFRS: -ICAI ARF has undertaken a project in NHPC Ltd. for implementation of International Financial Reporting System (IFRS) in its Organization.
• AIIMS Project for Implementation of Accrual System of Accounting: ICAI ARF has undertaken a project related to Accounting Reforms in the All India Institute of Medical Sciences (AIIMS) for implementation of accrual system of accounting and conversion of accounts from cash to accrual basis.

3. PROJECT PROPOSALS:

To further promote the applied research, the foundation office is working on the lines of the aforesaid projects and undertakes the following projects, as given below:

• Proposal received from Hindustan Aeronautics Limited (HAL) for Implementation of IFRS: The HAL has requested the ICAI ARF for implementation of IFRS in its units. The foundation office had sent preliminary report detailing out the scope of the assignment, financial highlights, basic approach to convergence, Team members etc. to HAL Office. The response of HAL based on the recommendation of its Audit Committee is awaited.

• Proposal received from Delhi Electricity Regulatory Commission (DERC) for implementation of Accrual System of Accounting: The DERC had approached the foundation office for preparation of their Annual Accounts as per Accrual System of Accounting. The foundation office had submitted the "Financial Quote" along with the Technical Proposal to DERC. Response from the office of DERC is awaited.

FINANCIAL PERFORMANCE:

During the year the revenue from research activities has been Rs. 51.62 Lakh as against Rs. 98.33 Lakh in the previous year. The excess of expenditure over income is Rs 24.12 Lakh as compared to the deficit of Rs. 18.85 Lakh during the year 2010-11. Since there has not been any surplus in the F.Y. 2011-12, therefore no amount could be appropriated towards the building reserve. Financial results for the year 2011-12 compared with those of previous year are summarized below:

(Amount in Rs.)

STRENGHTHENING OF INFRASTRUCTURAL BASE:
In order to strengthen the infrastructure base, ICAI ARF had taken an area of 20,000 sq. ft. in the Research Block, A-29, Sector-62, Noida, U.P. on sub-lease for a period of not less then ten years from the Institute of Chartered Accountants of India on annual lease rental of Rs. 5,000/- along with Rs.5,00,00,000/- (Rs. 5 Crore only) payable towards the acquired built up space and the proportionate cost of construction, furniture and fixtures, installation and interiors thereof.

THE WAY FORWARD:

Recognising the fact that considerable efforts are required to promote research in the field of accounting in India, ICAI ARF has taken a number of proactive measures for undertaking applied research, and carrying out research studies. The ICAI ARF would further intensify promotional campaign for establishing direct contact with the Universities and other bodies on the one hand, and reaching out to the potential researchers throughout the country, on the other.

The list of proposed research projects of contemporary national and international significance and proposed research projects for Ph. D degree would be further expanded, 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 various stakeholders.

Initiative for applied research in newer areas including already initiated with the office of Department of Posts on the lines of those taken up under MCD, KMC and CGA projects would also be considered, because they provide good base for applied research.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND EXPENDITURE:

Particulars of Employees: Pursuant to provisions of section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended from time to time, it is stated that no employee was in receipt of remuneration exceeding Rs. 24 Lakhs per annum or Rs. 2.00 Lakh per month during the year 2011-12.

DIRECTORS RESPONSIBILITY STATEMENT:

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

1. In the preparation of annual accounts applicable accounting standards have been followed with no material departure;

2. 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 2012 and of the income and expenditure of the Foundation for that period;

3. 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

4. We have prepared the annual accounts on a 'going concern' basis.

INDUSTRIAL RELATIONS

The foundation has maintained the cordial and harmonious relations at all levels. Efforts were made to inculcate team spirit and motivate the employees to fully develop their potential.

HUMAN RESOURCE DEVELOPMENT

The Foundation has always considered that its core strength lies in quality of its human assets.

STAFF WELFARE

Welfare of the employees had received due attention during the year.

BOARD OF DIRECTORS

During the year CA. G. Ramaswamy relinquished the charge of Chairman held by him as Ex-Officio. The Board places on record its appreciation for the commendable services and contribution made by CA. G. Ramaswamy.

STATUTORY AUDITORS

M/s. V. Sankar Aiyar & Company (Chartered Accountants) retire as Auditors at the conclusion of this Annual General Meeting. The Board at its 52nd Meeting held on 30th July 2012 has recommended appointment of M/s. R. Shyam & Associates (Chartered Accountants) as Statutory Auditor of the foundation office and they have confirmed their eligibility under 224(1B) of the Companies, 1956. The Board places on record its appreciation for the services rendered by the retiring auditors.

ACKNOWLEDGEMENT

The Board takes this opportunity to place on record its appreciation for the continued assistance, support and co-operation received from the Ministry of Corporate Affairs- Government of India, State Governments and Urban Local Bodies, M/s. Infosys Technologies Ltd, Office of the Department of Posts (DoP), AIIMS Authorities, Government of India, Guru Gobind Singh Indraprastha University, Bank of India and other authorities, experts, research scholars and individuals during the course of execution of the research projects and in other disciplines.

The Board of Directors sincerely appreciate and commend the valuable contribution made by the employees of the foundation at all levels in the pursuit of achieving objectives of the foundation for another year in succession.