Short Title and Commencement, – (1) These rules may be called the Cost Accounting Records (Telecommunication Industry) Rules, 2011

Short Title and Commencement, – (1) These rules may be called the Cost Accounting Records
(Telecommunication Industry) Rules, 2011

(2) They shall come into force on the date of their publication in the Official Gazette.
Definitions and Interpretations, – In these rules, unless otherwise requires,---
(a) “Act” means the Companies Act, 1956 (1 of 1956);
(b) “compliance report” means the compliance report duly authenticated and signed by a cost
accountant in the specified form of compliance report;
(c) “Cost Accountant” for the purpose of these rules means a cost accountant as defined in
clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of
1959) and who is either a permanent employee of the company or holds a valid certificate
of practice under sub-section (1) of section 6 and who is deemed to be in practice under
sub-section (2) of section 2 of that Act and includes a firm of cost accountants;
(d) “Cost Accounting Standards” means the standards of cost accounting, issued by the Institute
(e) “cost records” means books of account relating to utilization of materials, labour and other
items of cost as applicable to the production, processing, manufacturing or mining activities
of the company;
(f) “Form-A” means the form specified in these rules for filing compliance report and other
documents with the Central Government in the electronic mode;
(g) “Form-B” means the form of the compliance report and includes Annexure to the compliance
report;
(h) “Generally Accepted Cost Accounting Principles” means the principles of cost accounting
issued by the Institute;
(i) “Institute” means the Institute of Cost and Works Accountants of India constituted under the
Cost and Works Accountants Act, 1959 (23 of 1959);
(j) “product” means any tangible or intangible good, material, substance, article, idea, know-how,
method, information, object, service, etc. that is the result of human, mechanical, industrial,
chemical, or natural act, process, procedure, function, operation, technique, or treatment
and is intended for use, consumption, sale, transport, store, delivery or disposal;
(k) “product group” in relation to tangible products means a group of homogenous and alike
products, produced from same raw materials and by using similar or same production process,
having similar physical or chemical characteristics and common unit of measurement, and
having same or similar usage or application; and in relation to intangible products means a
group of homogenous and alike products or services, produced by using similar or same process
or inputs, having similar characteristics and common unit of measurement, and having same
or similar usage or application;
(l) “telecommunication activities” means any act, process, procedure, function, operation,
technique, treatment or method employed in relation to telecasting, broadcasting,
telecommunicating voice, text, picture, information, data or knowledge through any mode
or medium and includes intermediate and allied activities thereof and these activities would,
inter alia, include the following services or activities, including such services that require license
or registration with the Ministry of Communications and Information Technology, Government
of India, namely: -
(i) Basic Telephone Services;
(ii) National Long Distance Services;
(iii) International Long Distance Services;
(iv) Cellular Mobile Telephone Services;
(v) Wireless Local Loop (WLL) (Fixed or Mobile) Telephone Services;
(vi) Very Small Aperture Terminal Services;
(vii) Public Mobile Radio Trunk Services;
(viii) Global Mobile Personal Communication Services;
(ix) Internet or Broadband or Wireless Access service;
(x) Infrastructure Provider (IP-1);
(xi) Passive Telecom Infrastructure including Telecom Tower Facilities;
(xii) Cable Landing Stations; and
(xiii) Any other related, allied, intermediate or support services in relation to telecommunication
activities not indicated above.
(m) “turnover” means total turnover made by the company from the sale or supply of all products
or services during the financial year and it includes any turnover from job work or loan license
operations and the subsidies or grants or incentives received but does not include any nonoperational
income;
(n) all other words and expressions used in these rules but not defined, and defined in the Act and
rules made under clause (d) of sub-section (1) of section 209 of the Act shall have the same
meanings as assigned to them in the Act or rules, as the case may be.
3. Application, – These rules shall apply to every company, including a foreign company as defined
under section 591 of the Act, which is engaged in the production, processing, manufacturing, or
rendering of telecommunication activities and wherein, the aggregate value of net worth as on
the last date of the immediately preceding financial year exceeds five crores of rupees; or wherein
the aggregate value of the turnover made by the company from sale or supply of all products
or activities during the immediately preceding financial year exceeds twenty crores of rupees; or
wherein the company’s equity or debt securities are listed or are in the process of listing on any
stock exchange, whether in India or outside India:
Provided that these rules shall not apply to a body corporate governed by any special Act.
4. Maintenance of records, – 1) Every company to which these rules apply, including all units and
branches thereof shall, in respect of each of its financial year commencing on or after the date of
this notification, keep cost records and the books of account so maintained shall contain, inter-alia,
the particulars specified in Proformae A to H mentioned in the Schedule annexed to these rules.
2) The cost records referred to in sub-rule (1) shall be kept on regular basis in such manner so
as to make it possible to calculate per unit cost of production or cost of operations, cost of
sales and margin for each of its products and activities for every financial year on monthly or
quarterly or half-yearly or annual basis.
3) The cost records shall be maintained in accordance with the generally accepted cost
accounting principles and cost accounting standards issued by the Institute; to the extent these
are found to be relevant and applicable and the variations, if any, shall be clearly indicated
and explained.
4) The cost records shall be maintained in such manner so as to enable the company to exercise,
as far as possible, control over the various operations and costs with a view to achieve optimum
economies in utilization of resources and these records shall also provide necessary data which
is required to be furnished under these rules.
5) All such cost records and cost statements, maintained under these rules shall be reconciled
with the audited financial statements for the financial year specifically indicating expenses
or incomes not considered in the cost records or statements so as to ensure accuracy and
to reconcile the profit of all product groups with the overall profit of the company and the
variations, if any, shall be clearly indicated and explained.
6) All such cost records, cost statements and reconciliation statements, maintained under these
rules, relating to a period of not less than eight financial years immediately preceding a financial
year or where the company had been in existence for a period less than eight years, in respect
of all the preceding years shall be kept in good order.
7) Every person, referred to in sub-section (6) and (7) of section 209 of the Companies Act, 1956
(1 of 1956), shall take all reasonable steps to secure compliance by the company with the
provisions of these rules in the same manner as he is liable to maintain accounts required under
sub-section (1) of section 209 of the said Act.
5. Form of the Compliance Report, – Every company to which these rules apply shall submit a
compliance report, in respect of each of its financial year commencing on or after the date of
this notification, duly certified by a Cost Accountant, along with the Annexure to the Central
Government, in the specified form.
6. Time limit for submission of Compliance Report, – Every company shall submit the compliance
report referred to in rule 5 to the Central Government within a period of one hundred and eighty
days from the close of the company’s financial year to which the compliance report relates.
7. Authentication of Annexure to the Compliance Report, – The Annexure to the compliance report
shall be approved by the Board of Directors and certified by the Cost Accountant before submitting
the same to the Central Government by the company.
8. Penalties, – (1) If default is made by the Cost Accountant in complying with the provisions of these
rules, he shall be punishable with fine, which may extend to five thousand rupees.
(2) For contravention of these rules, -
(a) the company shall be punishable as provided under sub-section (2) of section 642 of the
Act; and
(b) every officer thereof who is in default, including the persons referred to in sub-section (6)
of section 209 of the Act, shall be punishable as provided under sub-sections (5) and (7)
of section 209 of Companies Act, 1956 (1 of 1956).
9. Savings, – The supersession of the Cost Accounting Records (Telecommunications) Rules, 2002, shall
not in any way affect-
(a) any right, obligation or liabilities acquired, accrued or incurred thereunder;
(b) any penalty, forfeiture or punishment incurred in respect of any contravention committed
thereunder; and
(c) Any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation,
liability, penalty, forfeiture or punishment as aforesaid, and; any such investigation, legal
proceeding or remedy may be instituted, continued or enforced and any such penalty,
forfeiture or punishment may be imposed as if those rules had not been superseded.

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY PART-II, SECTION-3, SUB-SECTION (i)] MINISTRY OF CORPORATE AFFAIRS

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY PART-II, SECTION-3, SUB-SECTION (i)]
MINISTRY OF CORPORATE AFFAIRS
Notification
New Delhi, dated the 3rd June, 2011

G.S.R. 429(E) - In exercise of the powers conferred by clause (b) of sub-section (1) of section 642 read with
clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 (1 of 1956), and in supersession
of the Cost Accounting Records Rules in so far as they relate to the Cost Accounting Records Rules
published vide (i) G.S.R. 311 dated 2nd March, 1967, (ii) G.S.R. 1260 dated 10th August, 1967, (iii) G.S.R.
1447 dated 16th September, 1967, (iv) G.S.R. 1448 dated 18th September, 1967, (v) G.S.R. 1467 dated 20th
September, 1967, (vi) G.S.R. 1503 dated 27th September, 1967, (vii) G.S.R. 2298 dated 15th September,
1969, (viii) G.S.R. 2574 dated 24th October, 1969, (ix) G.S.R. 334 dated 25th February, 1972, (x) G.S.R.
1529 dated 27th November, 1972, (xi) G.S.R. 590(E) dated 29th December, 1975, (xii) G.S.R. 601(E) dated
31st December, 1975, (xiii) G.S.R. 606 dated 20th April, 1976, (xiv) G.S.R. 605 dated 22nd April, 1976, (xv)
G.S.R. 126(E) dated 24th March, 1977, (xvi) G.S.R. 157(E) dated 1st April, 1977, (xvii) G.S.R. 417(E) dated
28th June, 1977, (xviii) G.S.R. 45(E) dated 31st January, 1979, (xix) G.S.R. 506(E) dated 10th May, 1984, (xx)
G.S.R. 688 dated 25th June, 1984, (xxi) G.S.R. 767 dated 7th July, 1984, (xxii) G.S.R. 664 dated 1st July, 1985,
(xxiii) G.S.R. 574 dated 31st July, 1990, (xxiv) G.S.R. 258(E) dated 3rd March, 1993, (xxv) G.S.R. 677(E) dated
29th October, 1993, (xxvi) G.S.R. 678(E) dated 29th October, 1993, (xxvii) G.S.R. 186(E) dated 12th April,
1996, (xxviii) G.S.R. 202(E) dated 6th May, 1996, (xxix) G.S.R. 271(E) dated 9th July, 1996, (xxx) G.S.R. 537(E)
dated 11th September, 1997, (xxxi) G.S.R. 536(E) dated 11th September, 1997, (xxxii) G.S.R. 704(E) dated
28th September, 2001, (xxxiii) G.S.R. 276(E) dated 24th April, 2001, (xxxiv) G.S.R. 277(E) dated 24th April,
2001, (xxxv) G.S.R. 685(E) dated 8th October, 2002, and (xxxvi) G.S.R. 562(E) dated 2nd September, 2004,
except as respects things done or omitted to be done before such supersession, the Central Government
hereby makes the following rules, namely:-
2. Short Title and Commencement- (1) These rules may be called The Companies (Cost Accounting
Records) Rules, 2011.
(2) They shall come into force on the date of their publication in the Official Gazette.
3. Definitions and Interpretations. - In these rules, unless otherwise so provided,---
(a) “Act” means the Companies Act, 1956 (1 of 1956);
(b) “Compliance Report” means compliance report duly authenticated and signed by a cost
accountant in the prescribed form of compliance report;

(c) “Cost Accountant” for the purpose of these rules means a cost accountant as defined in
clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of
1959) and who is either a permanent employee of the company or holds a valid certificate
of practice under sub-section (1) of section 6 and who is deemed to be in practice under
sub-section (2) of section 2 of that Act and includes a firm of cost accountants;
(d) “Cost Accounting Standards” means the standards of cost accounting, issued by the Institute;
(e) “Cost Records” means books of account relating to utilisation of materials, labour and other
items of cost as applicable to the production, processing, manufacturing or mining activities
of the company;
(f) “Form-A” means the form prescribed in these rules for filing compliance report and other
documents with the Central Government in the electronic mode;
(g) “Form-B” means the form of the compliance report and includes Annexure to the compliance
report;
(h) “Generally Accepted Cost Accounting Principles” means the principles of cost accounting
issued by the Institute;
(i) “Institute” means the Institute of Cost and Works Accountants of India constituted under the
Cost and Works Accountants Act, 1959 (23 of 1959);
(j) “Manufacturing Activity” includes any act, process or method employed in relation to -
(i) transformation of raw materials, components, sub-assemblies, or parts into semi-finished
or finished products; or
(ii) making, altering, repairing, fabricating, generating, composing, ornamenting, furnishing,
finishing, packing, re-packing, oiling, washing, cleaning, breaking-up, demolishing, or
otherwise treating or adapting any product with a view to its use, sale, transport, delivery
or disposal; or
(iii) constructing, reconstructing, reconditioning, servicing, refitting, repairing, finishing or
breaking up of any products.
(k) “Mining Activity” includes any act, process or method employed in relation to the extraction
of ores, minerals, oils, gases or other geological materials from the earth’s crust, including sea
bed or river bed.
(l) “Processing Activity” includes any act, process, procedure, function, operation, technique,
treatment or method employed in relation to-
(i) altering the condition or properties of inputs for their use, consumption, sale, transport,
delivery or disposal; or
(ii) accessioning, arranging, describing, or storing products; or
(iii) developing, fixing, and washing exposed photographic or cinematographic film or paper
to produce either a negative image or a positive image; or
(iv) printing, publishing, finishing, perforation, trimming, cutting, or packaging; or
(v) pumping oil, gas, water, sewage or any other product; or
(vi) transforming or transmitting, distributing power or electricity; or
(vii) harboring, berthing, docking, elevating, lading, stripping, stuffing, towing, handling, or
warehousing products; or
(viii) preserving or storing any product in cold storage; or
(ix) constructing, reconstructing, reconditioning, repairing, servicing, refitting, finishing or
demolishing of buildings or structures; or
(x) farming, feeding, rearing, treating, nursing, caring, and stocking of living organisms; or
(xi) telecasting, broadcasting, telecommunicating voice, text, picture, information, data or
knowledge through any mode or medium; or
(xii) obtaining, compiling, recording, maintaining, transmitting, holding or using the information
or data or knowledge; or
(xiii) executing instructions in memory to perform some transformation and/or computation
on the data in the computer’s memory.
(m) “Product” means any tangible or intangible good, material, substance, article, idea, know-how,
method, information, object, service, etc. that is the result of human, mechanical, industrial,
chemical, or natural act, process, procedure, function, operation, technique, or treatment
and is intended for use, consumption, sale, transport, store, delivery or disposal.
(n) “Product Group” in relation to tangible products means a group of homogenous and alike
products, produced from same raw materials and by using similar or same production process,
having similar physical or chemical characteristics and common unit of measurement, and
having same or similar usage or application; and in relation to intangible products means a
group of homogenous and alike products or services, produced by using similar or same process
or inputs, having similar characteristics and common unit of measurement, and having same
or similar usage or application.
(o) “Production Activity” includes any act, process, or method employed in relation to -
(i) transformation of tangible inputs (raw materials, semi-finished goods, or sub-assemblies)
and intangible inputs (ideas, information, know how) into goods or services; or
(ii) manufacturing or processing or mining or growing a product for use, consumption, sale,
transport, delivery or disposal; or
(iii) creation of value or wealth by producing goods or services.
(p) “Turnover” means gross turnover made by the company from the sale or supply of all products
or services during the financial year. It includes any turnover from job work or loan license
operations but does not include any non-operational income;
(q) All other words and expressions used in these rules but not defined, and defined in the Act and
rules made under clause (d) of sub-section (1) of section 209 of the Act shall have the same
meanings as assigned to them in the Act or rules, as the case may be.
Application- (1) These rules shall apply to every company, including a foreign company as defined
under section 591 of the Act, which is engaged in the production, processing, manufacturing,
or mining activities and wherein, the aggregate value of net worth as on the last date of the
immediately preceding financial year exceeds five crores of rupees; or wherein the aggregate value
of the turnover made by the company from sale or supply of all products or activities during the
immediately preceding financial year exceeds twenty crores of rupees; or wherein the company’s
equity or debt securities are listed or are in the process of listing on any stock exchange, whether
in India or outside India.
Provided that these rules shall not apply to a company which is a body corporate governed by
any special Act;
Provided further that these rules shall not apply to the activities or products covered in any of the
following rules,-
(a) Cost Accounting Records (Bulk Drugs) Rules, 1974
(b) Cost Accounting Records (Formulations) Rules, 1988
(c) Cost Accounting Records (Fertilizers) Rules, 1993
(d) Cost Accounting Records (Sugar) Rules, 1997
(e) Cost Accounting Records (Industrial Alcohol) Rules, 1997
(f) Cost Accounting Records (Electricity Industry) Rules, 2001
(g) Cost Accounting Records (Petroleum Industry) Rules, 2002
(h) Cost Accounting Records (Telecommunications) Rules, 2002
5. Maintenance of records- (1) Every company to which these rules apply, including all units and
branches thereof shall, in respect of each of its financial year commencing on or after the 1st day
of April, 2011, keep cost records.
(2) The cost records referred to in sub-rule (1) shall be kept on regular basis in such manner so as
to make it possible to calculate per unit cost of production or cost of operations, cost of sales
and margin for each of its products and activities for every financial year on monthly/quarterly/
half-yearly/annual basis.
(3) The cost records shall be maintained in accordance with the generally accepted cost
accounting principles and cost accounting standards issued by the Institute; to the extent
these are found to be relevant and applicable. The variations, if any, shall be clearly indicated
and explained.
(4) The cost records shall be maintained in such manner so as to enable the company to exercise,
as far as possible, control over the various operations and costs with a view to achieve optimum
economies in utilization of resources. These records shall also provide necessary data which is
required to be furnished under these rules.
(5) All such cost records and cost statements, maintained under these rules shall be reconciled
with the audited financial statements for the financial year specifically indicating expenses
or incomes not considered in the cost records or statements so as to ensure accuracy and to
reconcile the profit of all product groups with the overall profit of the company. The variations,
if any, shall be clearly indicated and explained.
(6) All such cost records, cost statements and reconciliation statements, maintained under these
rules, relating to a period of not less than eight financial years immediately preceding a financial
year or where the company had been in existence for a period less than eight years, in respect
of all the preceding years shall be kept in good order.
(7) It shall be the duty of every person, referred to in sub-section (6) and (7) of section 209 of the
Companies Act, 1956 (1 of 1956), to take all reasonable steps to secure compliance by the
company with the provisions of these rules in the same manner as he is liable to maintain
accounts required under sub-section (1) of section 209 of the said Act.
Form of the Compliance Report - Every company to which these rules apply shall submit a compliance
report, in respect of each of its financial year commencing on or after the 1st day of April, 2011,
duly certified by a cost accountant, along with the Annexure to the Central Government, in the
prescribed form.
7. Time limit for submission of Compliance Report – Every company shall submit the compliance report
referred to in rule 5 to the Central Government within one hundred and eighty days from the close
of the company’s financial year to which the compliance report relates.
8. Authentication of Annexure to the Compliance Report – The Annexure prescribed with the
compliance report, as certified by the cost accountant, shall be approved by the Board of Directors
before submitting the same to the Central Government by the company.
9. Penalties – (1) If default is made by the cost accountant in complying with the provisions of these
rules, he shall be punishable with fine, which may extend to five thousand rupees.
(2) If a company contravenes any provisions of these rules, the company and every officer thereof
who is in default, including the persons referred to in sub-section (6) of section 209 of the Act,
shall be punishable as provided under sub-section (2) of section 642 read with sub-sections
(5) and (7) of section 209 of Companies Act, 1956 (1 of 1956).
10. Savings- The supersession of the Cost Accounting Records Rules, shall not in any way affect-
(a) any right, obligation or liabilities acquired, accrued or incurred there under;
(b) any penalty, forfeiture or punishment incurred in respect of any contravention committed
there under; and
(c) any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation,
liability, penalty, forfeiture or punishment as aforesaid, and; any such investigation, legal
proceeding or remedy may be instituted, continued or enforced and any such penalty,
forfeiture or punishment may be imposed as if those rules had not been superseded.
[F. No. 52/10/CAB-2010]
B.B.GOYAL
ADVISER (COST)

The Cost Accounting Record Rules, 2011, is applicable to

The Cost Accounting Record Rules, 2011, is applicable to every company including a foreign company engaged in production, processing, manufacturing or mining wherein:
v the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds ` 5 crores, or
v the aggregate value of the turnover made by the company from all products or activities during the immediately preceding financial year exceeds ` 20 crores, or
v the company’s equity or debt securities are listed or are in the process of listing on any stock exchange

COST ACCOUNTING RECORD RULES, 2011

COST ACCOUNTING RECORD RULES, 2011

Not applicable to a body corporate governed by a special Act

• Supersedes 36 Cost Accounting Records out of 44 issued till date
• Not applicable to following activities or products covered under individual Cost Accounting Records Rules notified on 7th December 2011:
• Pharmaceuticals
• Electricity Industry
• Sugar
• Fertilizers
• Telecommunications
• Petroleum Industry

Clarification – General Circular 67/2011
The new Cost Accounting Records Rules, 2011 (Common & 6 Industry specific) are not applicable to
companies engaged in:

• Wholesale Trading
•  Insurance 
• Recreation 
• Retail Trading 
• Education 
• Transport Services 
• Banking 
• Healthcare 
• Professional Consultancy 
• Financial Tourism IT & IT Enabled Services 
• Leasing Travel Research& Development 
• Investment Hospitality Postal/Courier services

Job work operations or contracting/ sub-contracting activities and paid only the job work or conversion
charges, such as, tailoring, baking, repairing, painting, printing, constructing, servicing, etc.
v A company yet to commence commercial operations.
v Ancillary products/activities of companies incidental to their main operations (i.e. products/activities
that do not constitute their main line of business)
• where the total turnover from the sale of each such ancillary products/activities do not exceed
2% of the total turnover of the company or • ` 20 crores, whichever is lower.
v Required details of all such ancillary products/activities to be maintained under a miscellaneous
group and disclosed appropriately. 

FEATURES OF COST AUDIT

FEATURES OF COST AUDIT

The cost audit of the companies under the relevant provisions of the Companies Act, 1956 has the
following features:
(i) Assessing compliance of the relevant cost accounting records rules as applicable to the product
under review;
(ii) Study of the costing system to assess whether it is adequate for the cost ascertainment of the
product under review;
(iii) Evaluation of the operating and other efficiencies of the organization under audit with special
reference to the product under review; to ensure the submission of necessary details required under
the Cost Audit Report Rules, 2001 as amended from time to time.
(iv) Submission of Cost Audit Report in the format prescribed.
Since cost audit is carried out under the various provisions of the Companies Act, 1956, a thorough and
comprehensive knowledge of the Indian Companies Act including various rules prescribed thereunder
and the circulars issued by the Ministry of Corporate Affairs is essential for conducting an effective Cost
Audit

Provision for Cost Audit

Provision for Cost Audit

Section 233B was inserted by section 23 of the Companies (Amendment) Act, 1965, in order to enable
Government to issue necessary directions for conducting cost audit of companies engaged in
production, processing, manufacturing or mining activities. The Notes on clauses stated that the purpose
of the section was to “enable Government to issue necessary directions for conducting cost audit of
companies engaged in production, processing, manufacturing or mining activities” (clause 24).
Section 233B of the Companies Act 1956:
(1) Where in the opinion of the Central Government it is necessary so to do in relation to any company
required under clause (d) of sub-section (1) of section 209 to include in its books of account the
particulars referred to therein, the Central Government may, by order, direct that an audit of cost
accounts of the company shall be conducted in such manner as may be specified in the order by
an auditor who shall be a cost accountant within the meaning of the Cost and Works Accounts
Act, 1959 (23 of 1950):
Provided that if Central Government is of opinion that sufficient number of cost accountants
within the meaning of the Cost and Works Accountants Act, 1959 (23 of 1959), are not available
for conducting the audit of the cost accounts of companies generally, that Government may,
by notification in the Official Gazette, direct that, for such period as may be specified in the said
notification, such chartered accountant within the meaning of the Chartered Accountants Act,
1949 (38 of 1949), as possesses the prescribed qualifications, may also conduct the audit of the
cost accounts of companies, and thereupon a chartered accountant possessing the prescribed
qualifications may be appointed to audit the cost accounts of the company.
(2) The auditor under this section shall be appointed by the Board of directors of the company in
accordance with the provisions of sub-section (1B) of section 224 and with the previous approval
of the Central Government : Provided that before the appointment of any auditor is made by the
Board, a written certificate shall be obtained by the Board from the auditor proposed to be so
appointed to the effect that the appointment, if made, will be in accordance with the provisions
of sub-section (1B) of section 224.
(3) An audit conducted by an auditor under this section shall be in addition to an audit conducted
by an auditor appointed under section 224.
(4) An auditor shall have the same powers and duties in relation to an audit conducted by him under
this section as an auditor of a company has under sub-section (1) of section 227 and such auditor
shall make his report to the Central Government in such form 498 and within such time as may be
prescribed and shall also at the same time forward a copy of the report to the company.
(5) (a) A person referred to in sub-section (3) or sub-section (4) of section 226 shall not be appointed
or re-appointed for conducting the audit of the cost accounts of a company.
(b) A person appointed, under section 224, as an auditor of a company, shall not be appointed
or re-appointed for conducting the audit of the cost accounts of that company.
(c) If a person, appointed for conducting the audit of cost accounts of a company, becomes
subject, after his appointment, to any of the disqualifications specified in clause (a) or clause
(b) of this sub-section, he shall, on and from the date on which he becomes so subject, cease
to conduct the audit of the cost accounts of the company.
(6) Upon receipt of an order under sub-section (1), it shall be the duty of the company to give all
facilities and assistance to the person appointed for conducting the audit of the cost accounts of
the company.
(7) The company shall, within thirty days from the date of receipt of a copy of the report referred to
in sub-section (4), furnish the Central Government with full information and explanations on every
reservation or qualification contained in such report.
(8) If, after considering the report referred to in sub-section (4) and the information and explanations
furnished by the company under sub-section (7), the Central Government is of opinion that any
further information or explanation is necessary, that Government may call for such further information
and explanation and thereupon the company shall furnish the same within such time as may be
specified by the Government.
(9) On receipt of the report referred to in sub-section (4) and the in formations and explanations
furnished by the company under sub-section (7) and sub-section (8), the Central Government may
take such action on the report, in accordance with the provisions of this Act or any other law for
the time being in force, as it may consider necessary.
(10) The Central Government may direct the company whose cost accounts have been audited under
this section to circulate to its members, along with the notice of the annual general meeting to
be held for the first time after the submission of such report, the whole or such portion of the said
report as it may specify in this behalf.
(11) If default is made in complying with the provisions of this section, the company shall be liable to be
punished with fine which may extend to five thousand rupees, and every officer of the company
who is in default, shall be liable to be punished with imprisonment for a term which may extend to
three years, or with the fine which may extend to five thousand rupees, or with both.

PROVISIONS UNDER COMPANIES ACT RELATING TO MAINTENANCE OF COST RECORDS AND COST AUDIT

PROVISIONS UNDER COMPANIES ACT RELATING TO MAINTENANCE OF COST RECORDS AND COST AUDIT

The statutory provisions relating to maintenance of cost accounting records and cost audit were initially
introduced by the Companies (Amendment) Act, 1965.
Provisions for cost accounting records
The above noted developments resulted in inserting sections 209(1)(d) and 233B in the Companies Act,
1956, through the Companies (Amendment) Act, 1965 (31 of 1965). The central government amended
the Companies Act 1956 [Section 20 of the Companies (Amendment) Act 1965] and inserted sub-clause
(d) under sub-section (1) of Section 209 providing statutory maintenance of cost accounting records
in respect of class of companies engaged in production, processing, manufacturing and mining. The
Companies Act 1956 was further amended [Section 23 of the Companies (Amendment) Act 1965]
by inserting section 233B providing power to Central Government to order audit of cost accounts for
companies wherein maintenance of cost accounting records are prescribed under clause (d) of subsection
(1) of Section 209. The relevant provisions of the Companies Act 1956 are reproduced below:
Section 209 of the Companies Act 1956
Section 209 of the Companies Act 1956 deals with the books of accounts to be maintained by a body
corporate. The section provides as follows:
(1) Every company shall keep at its registered office proper books of account with respect to -
(a) all sums of money received and expended by the company and the matters in respect of
which the receipt and expenditure take place;
(b) all sales and purchases of goods by the company;
(c) the assets and liabilities of the company; and
(d) In the case of a company pertaining to any class of companies engaged in production,
processing, manufacturing or mining activities, such particulars relating to utilization of material
or labour or to other items of cost as may be prescribed, if such class of companies is required
by the Central Government to include such particular in the books of account.
Provided that all or any of the books of account aforesaid may be kept at such other place in India
as the Board of Directors may decide and when the Board of Directors so decides, the company
shall, within seven days of decision, file with the Registrar a notice in writing giving the full address
of that other place.
(2) Where a company has a branch office, whether in or outside India, the company shall be deemed
to have complied with the provisions of sub-section (1), if proper books of account relating to the
transactions effected at the branch office are kept at that office and proper summarised returns,
made up to dates at intervals of not more than three months, are sent by the branch office to the
company at its registered office or the other place referred to in sub-section (1).

(3) For the purposes of sub-sections (1) and (2), proper books of account shall not be deemed to be
kept with respect to the matters specified therein, -
(a) if there are not kept such books as are necessary to give a true and fair view of the state of the
affairs of the company or branch office, as the case may be, and to explain its transactions;
and;
(b) if such books are not kept on accrual basis and according to the double entry system of accounting.

(4) The books of account and other books and papers shall be open to inspection by any director
during business hours.
(4A) The books of accounts of every company relating to a period of not less than eight years immediately
preceding the current year together with the vouchers relevant to any entry in such books of
account shall be preserved in good order:
Provided that in the case of a company incorporated less than eight years before the current
year, the books of account for the entire period preceding the current year together with vouchers
relevant to entry in such books of account shall be so preserved.

(5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure
compliance by the company with the requirements of this section, or has by his own wilful act been
the cause of any default by the company there under, he shall, in respect of each offence, be
punishable with imprisonment for a term which may extend to six months, or with fine which may
extend to ten thousand rupees, or with both:
Provided that in any proceedings against a person in respect of an offence under this section
consisting of a failure to take reasonable steps to secure compliance by the company with the
requirements of this section, it shall be a defence to prove that a competent and reliable person
was charged with the duty of seeing that those requirements were complied with and was in a
position to discharge that duty:
Provided further that no person shall be sentenced to imprisonment for any such offence unless it
was committed wilfully.

(6) The persons referred to in sub-section (5) are the following, namely:-
(a) where the company has a managing director or manager, such managing director or manager
and all officers and other employees of the company; and
(b) where the company has neither a managing director nor manager, every director of the company.

(7) If any person, not being a person referred to in sub-section (6), having been charged by the
managing director, manager or Board of directors, as the case may be, with the duty of seeing that
the requirements of this section are complied with, makes default in doing so, he shall, in respect
of each offence, be punishable with imprisonment for a term which may extend to six months, or
with fine which may extend to ten thousand rupees, or with both.

RELEVANCE OF COST AUDIT

RELEVANCE OF COST AUDIT

In the initial years, Cost Audit was taken merely as a tool for ‘price control mechanism’ for consumer
and infrastructure industries in India. The main objective of Cost Audit when statutorily introduced under
the provisions of Companies Act, 1956 was to meet the Government requirements for regulating the
price mechanism in core industries like Cement, Sugar, Textiles and consumer industries like Vanaspati,
Formulations and Automobiles. The objective was to provide an authentic data to the Government to
regulate the demand and supply in the country through a price control mechanism.
The liberalization of the economy and consequential globalization has further enhanced the need for
authentic data.
The Expert committee formed by the Government of India to study the Cost Audit scenario in the country,
highlighted the following benefits of cost information:
v Cost Information enables the organization to structure the cost, understand it and use it for
communicating with the stakeholders.
Costing is an important tool in assessing organizational performance in terms of shareholder and
stakeholder value. It informs how profits and value are created, and how efficiently and effectively
operational processes transform input into output. It contributes to the data input on economy
level parameters like resources efficiency, waste management, resources allocation policies etc.
v Costing includes product, process, and resource-related information covering the functions of the
organization and its value chain. Costing information can be used to appraise actual performance
in the context of implemented strategies.
v Good practice in costing should support a range of both regular and non-routine decisions when
designing products and services to
• meet customer expectations and profitability targets;
• assist in continuous improvements in resources utilisation; and
• guide product mix and investment decisions.
v Working from a common data source (or a single set of sources) also helps to ensure that output
reports for different audiences are reconcilable with each other.
v Integrating databases and information systems can help to provide useful costing information more
efficiently as well as reducing source data manipulation.
As per International Federation of Accountants (IFAC), the general principles of costing and the design
of costing systems in this Guidance are generally applicable to all types of organization. For example,
cost information is an equally important driver of performance information and reporting in public and
not-for-profit organizations. However, some jurisdictions apply legislative expectations on performance.
These legislative mandates require reporting entities to develop and report cost information on a
consistent and regular basis. Rules in some jurisdictions prescribe the calculation of unit costs to (a)
allow comparisons between public authorities, and (b) establish the performance of specific activities.
Cost audits help to ascertain whether an organization’s cost accounting records are so maintained
as to give a true and fair view of the cost of production, processing, manufacturing, and mining of a
product. Therefore, cost audits can be used to the benefit of management, consumers and shareholders
by (a) helping to identify weaknesses in cost accounting systems, and (b) to help drive down costs by
detecting wastage and inefficiencies. Cost audits are also of assistance to governments in helping to
formulate tariff and taxation policies.
The Expert Group noted that the Indian economy has to migrate from the current status to the top end
position of the global competitiveness index in a short/medium time span. In a paper published by Mr.
P.L. Joshi (University of Bahrain in 2001) based on a survey of firms in India on adoption of management
accounting techniques it has been stated that, “Indian managements are generally conservative in
adopting to new techniques of management accounting.” Considering the maturity levels of cost and
management accounting in Indian economy caused by the legacy of protected environment, we have
a long way to traverse without the luxury of time. We do not have the luxury of a long experience curve
for this to happen and need to work out the strategies including policy intervention which will position
cost and management accounting as a soft infrastructure towards building national competitiveness.
We can look at the following maturity levels for devising a strategy:
Base Level : Plethora of legacy practices of cost accounting/ management
Level II : A National standard level of cost accounting discipline
Level III : A self driven level of world class cost/management accounting
The Expert Group was of the view that migrating through above levels should be at great speed and
especially Level II will require statutory drive through standard cost accounting practices for the entire
corporate sector. Once an enterprise crosses Level II into Level III it will be in a mode of voluntary adoption
of all cost and management accounting guidelines to be issued by professional bodies either for internal
financial management or for external reporting.

Meanings of Finance Key Words and Phrases - Letter B

Meanings of Finance Key Words and Phrases  - Letter B

B2B exchange: Business-to-business Internet marketplace that matches supply and demand by real-time auction bidding.
Back-to-Back Loan: An intercompany loan, also known as a fronting loan or link financing that is channeled through a bank.
Backward bending: Refers to a curve that reverses direction, usually if, after moving out away from an origin or axis, it then turns back toward it. The term is used most frequently to describe supply curves for which the quantity supplied declines as price rises above some point, as may happen in a labor supply curve, the supply curve for foreign exchange, or an offer curve.
Backward innovation: Building a more basic version of an existing product for a lesser-developed market.
Backward integration: Acquisition by a firm of its suppliers.
Backward linkage: The use by one firm or industry of produced inputs from another firm or industry.
Baker Plan: A plan by U.S. Treasury Secretary James Baker under which 15 principal middle-income debtor countries (the Baker countries) would undertake growth-oriented structural reforms, to be supported by increased financing from the World Bank and continued lending from commercial banks.
Balance of merchandise trade: The value of a country's merchandise exports minus the value of its merchandise imports.
Balance of payments adjustment mechanism: Any process, especially any automatic one, by which a country with a payments imbalance moves toward balance of payments equilibrium. Under the gold standard, this was the specie flow mechanism.
Balance of payments argument for protection: A common reason for restricting imports, especially under fixed exchange rates, when a country is losing international reserves due to a trade deficit. It can be argued that this is a second best argument, since a devaluation could solve the problem without distorting the economy and therefore at smaller economic cost.
Balance of payments deficit: A negative balance of payments surplus.
Balance of payments equilibrium: Meaningful only under a pegged exchange rate, this referred to equality of credits and debits in the balance of payments using the traditional definition of the capital account. A surplus or deficit implied changing official reserves, so that something would ultimately have to change.
Balance of payments surplus: A number summarizing the state of a country's international transactions, usually equal to the balance on current account plus the balance on capital account. This equals zero* and is uninformative under the modern definition of the latter, but with official reserve transactions excluded, or omitting also other volatile short-term capital-account transactions, it indicates the stress on a regime of pegged exchange rates.
Balance of payments: Net value of all economic transactions-including trade in goods and services, transfer payments, loans, and investments-between residents of the same country and those of all other countries. The International Money Fund’s accounting system that tracks the flow of goods, services, and capital in and out of each country. It is a list or accounting, of all of a country's international transactions for a given time period, usually one year. Payments into the country (receipts) are entered as positive numbers, called credits; payments out of the country (payments) are entered as negative numbers called debits. A single number summarizing all of a country's international transactions: the balance of payments surplus.
Balance of trade: The difference between a country’s total imports and exports. It is the net flows of goods (exports minus imports) between countries. It is the value of a country's exports minus the value of its imports. Unless specified as the balance of merchandise trade, it normally incorporates trade in services, including earnings (interest, dividends, etc.) on capital.
Balance on capital account: A country's receipts minus payments for capital account transactions.
Balance on current account: A country's receipts minus payments for current account transactions. It equals the balance of trade plus net inflows of transfer payments.
Balance sheet: A statement showing a firm's accounting value on a particular date. It reflects the equation, Assets = Liabilities + Stockholders' equity. It is a summary of a firm's financial position on a given date that shows total assets = total liabilities - owners' equity.
Balanced budget:
1. A government budget surplus that is zero, thus with net tax revenue equaling expenditure.
2. A balanced budget change in policy or behavior is one in which a component of the government budget, usually taxes, is adjusted as necessary to maintain a balanced budget.
Balanced growth: Growth of an economy in which all aspects of it, especially factors of production, grow at the same rate.
Balanced trade:
1. A balance of trade equal to zero. 2. The assumption that the balance of trade must be zero in equilibrium, as would be the case with a floating exchange rate and no capital flows. This is a standard assumption in real models of international trade, which exclude financial assets.
Balance-Sheet exposure: Accounting exposure.
Balassa-Samuelson Effect: The hypothesis that an increase in the productivity of tradable relative to non-tradable, if larger than in other countries, will cause an appreciation of the real exchange rate.
Baldwin envelope: The consumption possibility frontier for a large country, constructed as the envelope formed by moving the foreign offer curve along the country's transformation curve.
Balloon payment: A payment on debt that is much larger than other payments. The ultimate balloon payment is the entire principal at maturity.
Bank capital: The equity capital and other reserves available to protect bank depositors against credit losses.
Bank draft: A draft addressed to a bank. A payment instrument used to make international payments.
Bank for International Settlements (BIS): Organization headquartered in Basle that acts as the central bank for the industrial countries’ central banks. The BIS helps central banks manage and invest their foreign exchange reserves and also holds deposits of central banks so that reserves are readily available. It is an international organization that acts as a bank for central banks, fostering cooperation among them and with other agencies.
Bank loan swap: Debt swap.
Bank rate: The interest rate charged by a central bank to commercial banks for very short term loans; the discount rate.
Bank-based corporate governance system: A system of corporate governance in which the supervisory board is dominated by bankers and other corporate insiders.
Banker’s acceptance: Draft accepted by a bank. It a time draft drawn on and accepted by a commercial bank. Short-term promissory trade notes for which a bank (by having accepted them) promises to pay the holder the face amount at maturity.
Bargain purchase option: A lease provision allowing the lessee, to purchase the equipment for a price predetermined at lease inception, which is substantially lower than the expected fair market value at the date the option can be exercised.
Barrier Option: knockout option.
Barrier:
1. Any impediment to the international movement of goods, services, capital, or other factors of production. Most commonly a trade barrier.
2. An entry barrier.
Barter economy: An economic model of international trade in which goods are exchanged for goods without the existence of money. Most theoretical trade models take this form in order to abstract from macroeconomic and monetary considerations.
Barter: The exchange of goods for goods, without using money.
Base year: The year used as the basis for comparison by a price index such as the CPI. The index for any year is the average of prices for that year compared to the base year; e.g., 110 means that prices are 10% higher than in the base year. The base year is also the year whose prices are used to value something in real terms or after adjusting for inflation.
Basic balance: One of the more frequently used measures of the balance of payments surplus or deficit under pegged exchange rates, the basic balance was equal to the current account balance plus the balance of long-term capital flows.
Basis point: One hundred basis points equal one percent of interest.
Basis risk: The risk of unexpected change in the relationship between futures and spot prices.
Basis swap: Swap in which two parties exchange floating interest payments based on different reference rates. It is a floating-for-floating interest rate swap that pairs two floating rate instruments at different maturities, such as six-month LIBOR versus thirty-day U.S. T-bills.
Basis: The simple difference between two nominal interest rates.
Bear spread: A currency spread designed to bet on a currency’s decline. It involves buying a put at one strike price and selling another put at a lower strike price.
Bearer Securities: Securities that are unregistered.
Beggar thy neighbor: For a country to use a policy for its own benefit that harms other countries. Examples are optimal tariffs and, in a recession, tariffs and/or devaluation to create employment.
Beggar-Thy-Neighbor Devaluation: A devaluation that is designed to cheapen a nation’s currency and thereby increase its exports at others’ expense and reduce imports. Such devaluations often led to trade wars.
Benchmarking: A systematic procedure of comparing a company’s practices against the best practice and modifying actual knowledge to achieve superior performance.
Bertrand competition: The assumption, assumed to be made by firms in an oligopoly, that other firms hold their prices constant as they themselves change behavior. It contrasts with Cournot competition. Both are used in models of international oligopoly, but Cournot competition is used more often.
Best efforts offering: A security offering in which the investment bankers agree to use only their best efforts to sell the issuer's securities. The investment bankers do not commit to purchase any unsold securities.
Beta: A measure of the systematic risk faced by an asset or project. Beta is calculated as the covariance between returns on the asset and returns on the market portfolio divided by the variance of returns on the market portfolio. It is an index of systematic risk. It measures the sensitivity of a stock's returns to changes in returns on the market portfolio. The beta of a portfolio is simply a weighted average of the individual stock betas in the portfolio.
Bias:
1. Bias of technology, either change or difference, refers to a shift towards or away from use of a factor. The exact meaning depends on the definition of neutral used to define absence of bias. Factor bias matters for the effects of technological progress on trade and welfare.
2. Bias of a trade regime refers to whether the structure of protection favors importable or exportable, based on comparing their effective rates of protection. If these are equal, the trade regime is said to be neutral.
3. Bias of growth refers to economic growth through factor accumulation and/or technological progress and whether if favors one sector or another. Growth is said to be export biased if the export sector expands faster than the rest of the economy, import biased if the import-competing sector does so.
Bicycle Theory: With regard to the process of multilateral trade liberalization, the theory that if it ceases to move forward (i.e., achieve further liberalization), then it will collapse (i.e., past liberalization will be reversed).
Bid rate: The rate at which a market maker is willing to buy the quoted asset.
Bid: The price at which one can buy a currency.
Bid-ask spread: The difference between the buying and selling rates. It is the difference between the price that a buyer must pay on a market and the price that a seller will receive for the same thing. The difference covers the cost of, and provides profit for, the broker or other intermediary, such as a bank on the foreign exchange market.
Bid-offer spread: The difference between the interest rate at which the bank borrows money and lends money.
Bilateral agreement: An agreement between two countries, as opposed to a multilateral agreement.
Bilateral exchange rate: The exchange rate between two countries' currencies, defined as the number of units of either currency needed to purchase one unit of the other.
Bilateral quota: An import (or export) quota applied to trade with a single trading partner, specifying the amount of a good that can be imported from (exported to) that single country only.
Bilateral trade: The trade between two countries; that is, the value or quantity of one country's exports to the other, or the sum of exports and imports between them.
Bilateral transfer: A transfer payment from one country to another.
Bilateral: Between two countries, in contrast to ploy-lateral and multilateral.
Bill of exchange: Any document demanding payment such as a bank draft.
Bill of lading: The receipt given by a transportation company to an exporter when the former accepts goods for transport. It includes the contract specifying what transport service will be provided and the limits of liability. A contract between a carrier and an exporter in which the former agrees to carry the latter’s goods from port of shipment to port of destination. It is also the exporter’s receipt for the goods. A document that establishes the terms and conditions of a contract between a shipper and a shipping company under which freight is to be moved between specified points for a specified charge. It is a shipping document indicating the details of the shipment and delivery of goods and their ownership.
Black market: An illegal market, in which something is bought and sold outside of official government-sanctioned channels. Black markets tend to arise when a government tries to fix a price without itself providing all of the necessary supply or demand. Black markets in foreign exchange almost always exist when there are exchange controls.
Black Market: An illegal market that often arises when price controls or official rationing lead to shortages of goods, services, or assets.
Black-Scholes Option Pricing Model: The most widely used model for pricing options.
Blank endorsement: The method whereby a bill of lading is made into a freely negotiable document of title.
Blanket bond: A bond that coves a group of people, articles or properties.
Blanket contracts: A long-term contract in which the supplier promises to re-supply the buyers as needed at agreed-upon prices over the contracting time.
Blocked Currency: A currency that is not freely convertible to other currencies due to exchange controls.
Blocked funds: Cash flows generated by a foreign project that cannot be immediately repatriated to the parent firm because of capital flow restrictions imposed by the host government.
Blue sky laws: State laws regulating the offering and sale of securities.
Bond discount: The amount by which the face value of a bond exceeds its current price.
Bond equivalent yield: A bond quotation convention based on a 365-day year and semiannual coupons. Contrast with effective annual yield.
Bond premium: The amount by which the current price of a bond exceeds its face value.
Bond: A long-term debt instrument issued by a corporation or government. A debt instrument, issued by a borrower and promising a specified stream of payments to the purchaser, usually regular interest payments plus a final repayment of principal. Bonds are exchanged on open markets including, in the absence of capital controls, internationally, providing a mechanism for international capital mobility.
Bonded Warehouse: A warehouse authorized for storage of good on which payment of duty is deferred until the goods are removed from the warehouse. A warehouse authorized by customs authorities for storage of goods on which payment of duties is deferred until the goods are removed.
Book value:
(1) An asset: the accounting value of an asset – the asset's cost minus its accumulated depreciation.
(2) a firm: total assets minus liabilities and preferred stock as listed on the balance sheet.
Boom-bust cycle: A pattern of performance over time in an economy or an industry that alternates between extremes of rapid growth and extremes of slow growth or decline, as opposed to sustained steady growth. For an economy, this indicates an extreme form of the business cycle.
Border price: The price of a good at a country's border.
Border tax adjustment: Rebate of indirect taxes (taxes on other than direct income, such as a sales tax or VAT) on exported goods and levying of them on imported goods. May distort trade when tax rates differ or when adjustment does not match the tax paid.
Borderless world: The concept that national borders no longer matter, perhaps for some specified purpose.
Borrowing: The amount that an entity, usually a country or its government, has borrowed. Thus it is often the (negative of) the net foreign asset position or the national debt.
Boycott: To protest by refusing to purchase from someone, or otherwise do business with them. In international trade, a boycott most often takes the form of refusal to import a country's goods.
BP-Curve: In the Mundell-Fleming model, the curve representing balance of payments equilibrium. It is normally upward sloping because an increase in income increases imports while an increase in the interest rate increases capital inflows. The curve is used under pegged exchange rates for effects on the balance of payments and under floating rates for effects on the exchange rate.
Brady Bonds: New government securities issued under the Brady Plan whose interest payments were backed with money from the International Monetary Fund.
Brady Plan: Plan developed by U.S. Treasury Secretary Nicholas Brady in 1989 that emphasized LDC debt relief through forgiveness instead of new lending. It gave banks the choice of either making new loans or writing off portions of their existing loans in exchange for Brady Bonds.
Brain drain: The migration of skilled workers out of a country.
Branch: A foreign operation incorporated in the home country.
Break-even analysis: Analysis of the level of sales at which a project would make zero profit. It is a technique for studying the relationship among fixed costs, variable costs, sales volume, and profits. It is also called cost/volume/profit (C/V/P) analysis.
Break-even chart: A graphic representation of the relationship between total revenues and total costs for various levels of production and sales, indicating areas of profit and loss.
Break-even point: The sales volume required so that total revenues and total costs are equal; may be expressed in units or in sales dollars.
Bretton Woods System: International monetary system established after World War II under which each government pledged to maintain a fixed, or pegged, exchange rate for its currency vis-à-vis the dollar or gold. As one ounce of gold was set equal to $35, fixing a currency’s gold price was equivalent to setting its exchange rate relative to the dollar. The U.S. government pledged to maintain convertibility of the dollar into gold for foreign official institutions.
Bretton Woods: A town in New Hampshire at which a 1944 conference launched the IMF and the World Bank. These, along with the GATT (General Agreement on Tariffs and Trade), WTO (World Trade Organization) became known as the Bretton Woods Institutions, and together they comprise the Bretton Woods System.
Bribe: A payment made to person, often a government official such as a customs officer, to induce them to treat the payer favorably.
Broker's fee: The fee for a transaction charged by an intermediary in a market, such as a bank in a foreign-exchange transaction.
Brown field investment: FDI (Foreign Direct Investment) that involves the purchase of an existing plant or firm, rather then construction of a new plant. It contrasts with green field investment.
Bubble economy: Term for an economy in which the presence of one or more bubbles in its asset markets is a dominant feature of its performance.
Bubble: A rise in the price of an asset based not on the current or prospective income that it provides but solely on expectations by market participants that the price will rise in the future. When those expectations cease, the bubble bursts and the price falls rapidly.
Budget constraint:
1. For an individual or household, the condition that income equals expenditure (in a static model), or that income minus expenditure equals the value of increased asset holdings (in a dynamic model).
2. For a country, the condition that the value of exports equals the value of imports or, if capital flows are permitted, that exports minus imports equals the net capital outflow. It is equivalent to income from production equaling expenditure on goods plus net acquisition of foreign assets.
3. It is a function usually a straight line representing either of these conditions.
Budget deficit: The negative of the budget surplus; thus the excess of expenditure over income.
Budget surplus: Refers in general to an excess of income over expenditure, but usually refers specifically to the government budget, where it is the excess of tax revenue over expenditure (including transfer and interest payments).
Buffer stock: A large quantity of a commodity held in storage to be used to stabilize the commodity's price. This is done by buying when the price is low and adding to the buffer stock, selling out of the buffer stock when the price is high, hoping to reduce the size of price fluctuations.
Bull Spread: A currency spread designed to bet on a currency’s appreciation. It involves buying a call at one strike price and selling another call at a higher strike price.
Bureau of Economic Analysis: The government agency within the United States Department of Commerce that collects macroeconomic data, especially the National Income and Product Accounts, as well as data on balance of payments and international investment.
Business cycle: The pattern followed by macroeconomic variables, such as GDP and unemployment that rise and fall irregularly over time, relative to trend. There is some tendency for cyclical movements of large countries to cause similar movements in other countries with whom they trade.
Business risk: The inherent uncertainty in the physical operations of the firm. Its impact is shown in the variability of the firm's operating income (EBIT).
Business-to-business (B2B): Communications and transactions conducted between businesses, as opposed to between businesses and end customers. Expressed in alphanumeric form (i.e., B2B), it refers to such transactions conducted over the Internet.

Meanings of Finance Key Words and Phrases - Letter A

Abandonment value: The value of a project if the project's assets were sold externally; or alternatively, its opportunity value if the assets were employed elsewhere in the firm. 
ABC method of inventory control: Method that controls expensive inventory items more closely than less expensive items. 
Absolute advantage: The ability to produce a good at lower cost, in terms of labor, than another country. An absolute advantage exists when a nation or other economic region is able to produce a good or service more efficiently than a second nation or region. 
Absolute-priority rule: The rule in bankruptcy or reorganization that claims of a set of claim holders must be paid, or settled, in full before the next, junior, set of claim holders may be paid anything. 
Absorption and balance of trade: Total demand for goods and services by all residents (consumers, producers, and government) of a country (as opposed to total demand for that country's output). The balance of trade is equal to income minus absorption. 
Accelerated depreciation: Methods of depreciation that write off the cost of a capital asset faster than under straight-line depreciation. 
Acceptance: A time draft that is accepted by the drawee. Accepting a draft means writing accepted across its face, followed by an authorized person’s signature and the date. The party accepting a draft incurs the obligation to pay it at maturity. 
Accession: The process of adding a country to an international agreement, such as the GATT (General Agreement on Tariffs and Trade), WTO (World Trade Organization), EU (European Communities), or NAFTA (North American Free Trade Agreement). 
Accommodating transaction: In the balance of payments, a transaction that is a result of actions taken officially to manage international payments; in contrast with autonomous transaction. Thus official reserve transactions are accommodating, as may be short-term capital flows that respond to expectations of intervention. 
Accounting (translation) exposure: Changes in a corporation’s financial statements as a result of changes in currency values. The change in the value of a firm’s foreign-currency-denominated accounts due to change in exchange rates. 
Accounts receivable: Amounts of money owed to a firm by customers who have bought goods or services on credit. A current asset, the accounts receivable account is also called receivables. 
Accrued expenses: Amounts owed but not yet paid for wages, taxes, interest, and dividends. The accrued expenses account is a short-term liability. 
Acid-test (quick) ratio: Current assets less inventories divided by current liabilities. It shows a firm's ability to meet current liabilities with its most liquid (quick) assets. 
Acquisition of assets: In an acquisition of assets, one firm acquires the assets of another company. None of the liabilities supporting that asset are transferred to the purchaser. 
Acquisition of stock: In an acquisition of stock, one firm buys an equity interest in another. 
Acquisition premium: In a merger or acquisition, the difference between the purchase price and the pre-acquisition value of the target firm.
Act of State Doctrine: This doctrine says that a nation is sovereign within its own borders and its domestic actions may not be questioned in the courts of another nation.
Active fund management: An investment approach that actively shifts funds either between asset classes (i.e. asset allocation) or between individual securities (i.e. security selection).
Active income: In the U.S. tax code, income from an active business as opposed to passive investment income.
Activity based cost (i.e. ABC) : An accounting method that allocates costs to specific products based on breakdowns of cost drivers.
Activity ratios: Ratios that measure how effectively the firm is using its assets.
Ad valorem tariff: A tariff assessed as a percentage of the value of an import.
Additional paid-in capital: Funds received by a company in a sale of common stock that are in excess of the par or stated value of the stock.
Adjustable peg: An exchange rate that is pegged, but for which it is understood that the par value will be changed occasionally. This system can be subject to extreme speculative attack and financial crisis, since speculators may easily anticipate these changes. 
Adjusted beta: An estimate of a security's future beta that involves modifying the security's historical (measured) beta owing to the assumption that the security's beta has a tendency to move over time toward the average beta for the market or the company's industry.
Adjusted for inflation: Corrected for price changes to yield an equivalent in terms of goods and services. The adjustment divides nominal amounts for different years by price indices for those years -- e.g. the CPI (Consumer price index) or the implicit price deflator -- and multiplies by 100. This converts to real values, i.e. valued at the prices of the base year for the price index. 
Adjusted present value (APV): The sum of the discounted value of a project's operating cash flows (assuming equity financing) plus the value of any tax-shield benefits of interest associated with the project's financing minus any flotation costs. It is a valuation method that separately identifies the value of an un-levered project from the value of financing side effects. It is the net present value of a project using the all-equity rate as a discount rate. The effects of financing are incorporated in separate terms.
Administered price: A price for a good or service that is set and maintained by government, usually requiring accompanying restrictions on trade if the administered price differs from the world price. 
Administered protection: Protection, tariff or NTB (Nontariff barrier), resulting from the application of any one of several statutes that respond to specified market circumstances or events, usually as determined by an administrative agency. Several such statutes are permitted under the GATT (General Agreement on Tariffs and Trade), including anti-dumping duties, countervailing duties, and safeguards protection. 
Administrative agency: A unit of government charged with the administration of particular laws. In the United States, those most important for administering laws related to international trade are the ITC (International Trade Commission) and ITA (International Trade Administration). 
Administrative pricing rule: IRS rules used to allocate income on export sales to a foreign sales corporation.
Advance deposit requirement: A requirement that some proportion of the value of imports, or of import duties, be deposited prior to payment, without competitive interest being paid. 
Advance payment: Trading method in which the buyer pays for the goods before they are sent out , method is used when buyer is of unknown credit worthiness.
Advance pricing agreement (APA): Procedure that allows the multinational firm, the IRS, and the foreign tax authority to work out, in advance, a method to calculate transfer prices.
Adventure: It is also called marine adventure. It is a term of art in the marine insurance business. All insured cargo owners and every shipper on that vessel are part of the adventure.
Adverse Incentives: moral hazard.
Adverse selection: The possibility that only the highest-risk customers will seek insurance.
Adverse terms of trade: A terms of trade that is considered unfavorable relative to some benchmark or to past experience. Developing countries specialized in primary products are sometimes said to suffer from adverse or declining terms of trade. 
Advising bank: Bank, usually in the country of the seller, whose primary function is to authenticate the letter of credit and advise it to the seller.
Advisory Capacity: Used to indicate that a shipper's agent or representative is not empowered to make definitive changes or adjustments without approval of the group or individual represented. 
African Development Bank (AFDB): The AFDB makes or guarantees loans and provides technical assistance to member states for various development projects.
Agency (theory): A branch of economics relating to the behavior of principals (such as owners) and their agents (such as managers).
Agency costs: Costs that stem from conflicts between managers and stockholders and between stockholders and bondholders. The costs incurred to ensure that agents act in the best interest of the principal. Costs associated with monitoring management to ensure that it behaves in ways consistent with the firm's contractual agreements with creditors and shareholders.
Agent: In Principal-Agent Theory, the person whose job it is to act to the benefit of someone else (the principal), but who may require some incentive to do so. Agent(s) are the Individual(s) authorized by another person, called the principal, to act in the latter's behalf.
Agglomeration economy: Any benefit that accrues to economic agents as a result of having large numbers of other agents geographically close to them, thus tending to lead to agglomeration. This is a basic feature of the New Economic Geography. 
Aggregate demand: The total demand of all potential buyers of a commodity or service. It is the total demand for a country's output, including demands for consumption, investment, government purchases, and net exports. 
Aggregate measurement of support: The measurement of subsidy to agriculture used by the WTO as the basis for commitments to reduce the subsidization of agricultural products. It includes the value of price supports and direct subsidies to specific products, as well as payments that are not product specific. 
Aggregate supply: The total supply of a country's output, usually assumed to be an increasing function of its price level in the short run but independent of the price level in the long run. 
Aggregation: The combining of two or more kinds of an economic entity into a single category. Data on international trade necessarily aggregate goods and services into manageable groups. For macroeconomic purposes, all goods and services are usually aggregated into just one. 
Aging accounts receivable: The process of classifying accounts receivable by their age outstanding as of a given date. 
Agricultural good: A good that is produced by agriculture. Contrasts with manufactured good. 
Agriculture: Production that relies essentially on the growth and nurturing of plants and animals, especially for food, usually with land as an important input; farming. Contrasts with manufacturing. 
All-Equity Rate: The discount rate that reflects only the business risks of a project and abstracts from the effects of financing. It is the beta associated with the un-leveraged cash flows of a project or company. 
All-in Cost: The effective interest rate on a loan, calculated as the discount rate that equates the present value of the future interest and principal payments to the net proceeds received by the borrower; it is the internal rate of return on the loan. The percentage cost of a financing alternative, including any bank fees or placement fees. 
Allocation: An assignment of economic resources to uses. Thus, in general equilibrium, an assignment of factors to industries producing goods and services, together with the assignment of resulting final goods and services to consumers, within a country or throughout the world economy. The question is to whether or not an allocation is efficient. A change from an allocation that is not efficient to one that is may be termed an increase in efficiency. 
Allocational efficiency: The efficiency with which a market channels capital toward its most productive uses. 
Allocation-of-income rules: In the U.S. tax code, these rules define how income and deductions are to be allocated between domestic-source and foreign-source income. 
Alternative minimum tax (AMT): An alternative, separate tax calculation based on the taxpayer's regular taxable income, increased by certain tax benefits, collectively referred to as tax preference items. The taxpayer pays the larger of the regularly determined tax or the AMT. 
American Depository Receipt (ADR): A certificate of ownership issued by a U.S. bank as a convenience to investors in lieu of the underlying foreign corporate shares it holds in custody. Contrast with European option. 
American option: An option that can be exercised anytime until expiration. It is an option that can be exercised at any time up to the expiration date. 
American shares: Shares of a foreign corporation issued directly to U.S. investors through a transfer agent in accordance with SEC regulations. Securities certificates issued in the United States by a transfer agent acting on behalf of the foreign issuer. The certificates represent claims to foreign equities. 
American terms: Method of quoting currencies; it is expressed as the number of U.S. dollars per unit of foreign currency. It is a foreign exchange quotation that states the U.S. dollar price per foreign currency unit. Contrast with European terms.
Amortization schedule: A table showing the repayment schedule of interest and principal necessary to pay off a loan by maturity.
Amortization: The deduction of an expense in installments over a period of time, rather than all at once. 
Amplitude: The extent of the up and down movements of a fluctuating economic variable; that is, the difference between the highest and lowest values of the variable. 
Annuity factor: The term used to calculate the present value of the stream of level payments for a fixed period.
Annuity: A level stream of equal dollar payments that lasts for a fixed time. An example of an annuity is the coupon part of a bond with level annual payments. It is a series of equal payments or receipts occurring over a specified number of periods. In an ordinary annuity, payments or receipts occur at the end of each period; in an annuity due, payments or receipts occur at the beginning of each period.
Anti-dumping duty: Tariff levied on dumped imports. The threat of an anti-dumping duty can deter imports, even when it has not been used, and anti-dumping is therefore a form of non-tariff barrier. Anti-dumping suit is a complaint by a domestic producer that imports are being dumped, and the resulting investigation and, if dumping and injury are found, anti-dumping duty. 
Anti-dumping laws: Laws that are enacted to prevent dumping-offering prices in the overseas market that is lower than that at which a product is sold in its home domestic market.
Apparel Clothing: The apparel sector is important for trade because, as a very labor intensive sector, it is a likely source of comparative advantage for developing countries.
Apparent consumption: Production plus imports minus exports, sometimes also adjusted for changes in inventories. The intention here is not to distinguish different uses for a good within the country, but only to infer the total that is used there for any purpose. 
Applied tariff rate: The actual tariff rate in effect at a country's border. 
Appreciation: An increase in a currency value relative to another currency in a floating exchange rate system. A rise in the value of a country's currency on the exchange market, relative either to a particular other currency or to a weighted average of other currencies. The currency is said to appreciate, i.e., revaluation. Opposite of depreciation. 
Arab Fund for Economic and Social Development (AFESD): A multilateral Arab fund that actively searches for projects in Arab League countries and then assumes responsibility for project implementation.
Arbitrage pricing theory (APT): A theory where the price of an asset depends on multiple factors and arbitrage efficiency prevails.
Arbitrage: The purchase of securities or commodities on one market for immediate resale on another in order to profit from a price discrepancy. A combination of transactions designed to profit from an existing discrepancy among prices, exchange rates, and/or interest rates on different markets without risk of these changing. Simplest is simultaneous purchase and sale of the same thing in different markets, but more complex forms include triangular arbitrage and covered interest arbitrage. It is finding two assets that are essentially the same, buying the cheaper, and selling the more expensive. The process of purchasing and selling foreign exchange, stocks, bonds and other commodities in several markets intending to make profit from the difference in price.
Arm’s-Length Price: Price at which a willing buyer and a willing unrelated seller would freely agree to transact (i.e., a market price).
Arrearage: A late or overdue payment, which may be cumulative.
Asiacurrency ( or Asiadollar) Market: Offshore financial market located in Singapore that channels investment dollars to a number of rapidly growing Southeast Asian countries and provides deposit facilities for those investors with excess funds.
Asian Development Bank (ADB): The ADB guarantees or makes direct loans to member sates and private ventures in Asian/Pacific nations and helps to develop local capital markets by underwriting securities issued by private enterprises.
Ask (i.e. offer) rates: The rate at which a market maker is willing to sell the quoted asset.
Ask: The price at which one can sell a currency. It is also known as the offer price.
Asset allocation policy: The target weights given to various asset classes in an investment portfolio.
Asset approach: It is for determination of the exchange rate that focuses on its role as the price of an asset. With high capital mobility, equilibrium requires that expected returns on comparable domestic and foreign assets be the same.
Asset securitization: The process of packaging a pool of assets and then selling interests in the pool in the form of asset-backed securities (ABS).
Asset: An item of property, such as land, capital, money, a share in ownership, or a claim on others for future payment, such as a bond or a bank deposit. 
Asset-backed securities (ABS): Debt securities whose interest and principal payments are provided by the cash flows coming from a discrete pool of assets.
Assets-in-place: Those assets in which the firm has already invested. Compare to growth options.
Assigned (or stated) value: A nominal value assigned to a share of no-par common stock that is usually far below the actual issuing price.
Assignment problem: How to use macroeconomic policies to achieve both internal balance and external balance; specifically, with only monetary and fiscal policies available under fixed exchange rates, which instrument should be assigned to which goal? It is often the case that monetary policy should be assigned to external balance. 
Asymmetric information: The failure of two parties to a transaction to have the same relevant information. Examples are buyers who know less about product quality than sellers, and lenders who know less about likely default than borrowers. Both are common in international markets. 
Asymmetric shock: An exogenous change in macroeconomic conditions affecting differently the different parts of a country, or different countries of a region. Often it is mentioned as a source of difficulty for countries sharing a common currency, such as the Euro Zone. 
At par: At equality. Two currencies are said to be at par if they are trading one-for-one. The significance is more psychological then economic, but the long decline of the Canadian dollar below par with the U.S. dollar, and the more recent decline of the euro from above to below par, also with the U.S. dollar, has been cause for concern.
Atlantic Development Group for Latin America (ADELA): An international private investment company dedicated to the socioeconomic development of Latin America. Its objective is to strengthen private enterprise by providing capital and entrepreneurial and technical services.
At-the-money option: An option with an exercise price that is equal to the current value of the underlying asset. An option whose exercise price is the same as the spot exchange rate.
Autarky price: Price in autarky; that is, the price of something within a country when it is not traded by that country. Relative autarky prices turn out to be the most theoretically robust (but empirically elusive) measures of comparative advantage. 
Autarky: In models of international trade, a situation in which there is no cross-border trade. It is the situation of not engaging in international trade; self-sufficiency. Not to be confused with autarchy which in at least some dictionaries is a political term rather than an economic one, and means absolute rule or power? 
Automated clearinghouse (ACH) electronic transfer: This is essentially an electronic version of the depository transfer check.
Automatic stabilizer: It is an institutional feature of an economy that dampens its macroeconomic fluctuations, e.g., an income tax, which acts like a tax increase in a boom and a tax cut in a recession. 
Autonomous transaction: In the balance of payments, a transaction that is not itself a result of actions taken officially to manage international payments; in contrast with accommodating transaction. 
Autonomous: Refers to an economic variable, magnitude, or entity that is caused independently of other variables that it may in turn influence; exogenous. 
Aval: A guarantee of the buyer's credit provided by the guarantor, unless the buyer is of unquestioned financial standing. The aval is an endorsement note as opposed to a guarantee agreement.
Avalisation: Payment undertaking given by a bank in respect of a bill of exchange drawn.
Average accounting return (AAR): The average project earnings after taxes and depreciation divided by the average book value of the investment during its life.
Average cost: Total cost divided by output. 
Average product: The average product of a factor in a firm or industry is its output divided by the amount of the factor employed. 
Average tariff: An average of a country's tariff rates. This can be calculated in several ways, none of which are ideal for representing how protective the country's tariffs are. Most common is the trade-weighted average tariff, which under-represents prohibitive tariffs, since they get zero weight.