World trade organization

WTO

The WTO was established on January 1, 1995. It is the embodiment of the Uruguay Round results and the successor to GATT. 76 Governments became  members of WTO on its first day. It has now 146 members, India being one of the founder members. It has a legal status and enjoys privileges and immunities on the same footing as the IMF and the World Bank. It is composed of the Ministerial Conference and the General Council. The Ministerial Conference (MC) is the highest body. It is composed of the representatives of all the Members. The Ministerial Conference is the executive of the WTO and responsible for carrying out the functions of the WTO. The MC meets at least

once every two years. The General Council (GC) is an executive forum composed of representatives of all the Members. The GC discharges the functions of MC during the intervals between meetings of MC.

The GC has three functional councils working under  its guidance and supervision namely:

a) Council for Trade in Goods.

b) Council for Trade in Services.

c) Council for Trade Related Aspects of Intellectual Property Rights (TRIPs).

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business.

The World Trade Organization (WTO) is an international organization designed by its founders to supervise and liberalize international capital trade. The organization officially commenced on January 1, 1995 under the Marrakesh Agreement, replacing the General Agreements on Tariffs and Trade (GATT), which commenced in 1947.

The World Trade Organization deals with regulation of trade between participating countries; it provides a framework for negotiating and formalizing trade agreements, and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements which are signed by representatives of member governments and ratified by their parliaments.

 Most of the issues that the WTO focuses on derive from previous trade negotiations, especially from the Uruguay Round (1986-1994). The organization is currently endeavouring to persist with a trade negotiation called the Doha Development Agenda (or Doha Round), which was launched in 2001 to enhance equitable participation of poorer countries which represent a majority of the world's population. However, the negotiation has been dogged by "disagreement between exporters of agricultural bulk commodities and countries with large numbers of subsistence farmers on the precise terms of a 'special safeguard measure' to protect farmers from surges in imports. At this time, the future of the Doha Round is uncertain."

Functions of WTO

The following are the functions of the WTO:

1. It facilitates the implementation, administration and operation of the objectives of the Agreement and of the Multilateral Trade Agreements.

2. It provides the framework for the implementation, administration and operation of the Plurilateral Trade Agreements relating to trade in civil aircraft, government procurement, trade in diary products and bovine meat.

3. It provides the forum for negotiations among its members concerning their multilateral trade relations in matters relating to the agreements and a framework for the implementation of the result of such negotiations, as decided by the Ministerial Conference.

4. It administers the Understanding on Rules and Procedures governing the Settlement of Disputes of the Agreement.

5. It cooperates with the IMF and the World Bank and its affiliated agencies with a view to achieving greater coherence in global economic policy-making.

GATS:

The General Agreement on Trade in Services (GATS) is a treaty of the World Trade Organization (WTO) that entered into force in January 1995 as a result of the Uruguay Round negotiations. The treaty was created to extend the multilateral trading system to service sector, in the same way the General Agreement on Tariffs and Trade (GATT) provides such a system for merchandise trade. All members of the WTO are signatories to the GATS. The basic WTO principle of most favoured nation (MFN) applies to GATS as well. However, upon accession, Members may introduce temporary exemptions to this rule

At the heart of the system — known as the multilateral trading system — are the WTO’s agreements, negotiated and signed by a large majority of the world’s trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody’s benefit.

The agreements were negotiated and signed by governments. But their purpose is to help producers of goods and services, exporters, and importers conduct their business.The goal is to improve the welfare of the peoples of the member countries

WTO AGREEMENTS

The WTO’s rules — the agreements — are the result of negotiations between the members. The current set were the outcome of the 1986–94 Uruguay Round negotiations which included a major revision of the original General Agreement on Tariffs and Trade (GATT).

GATT is now the WTO’s principal rule-book for trade in goods. The Uruguay Round also created new rules for dealing with trade in services, relevant aspects of intellectual property, dispute settlement, and trade policy reviews. The complete set runs to some 30,000 pages consisting of about 30 agreements and separate commitments (called schedules) made by individual members in specific areas such as lower customs duty rates and services market-opening.

Through these agreements, WTO members operate a non-discriminatory trading system that spells out their rights and their obligations. Each country receives guarantees that its exports will be treated fairly and consistently in other countries’ markets. Each promises to do the same for imports into its own market. The system also gives developing countries some flexibility in implementing their commitments.

Goods  

It all began with trade in goods. From 1947 to 1994, GATT was the forum for negotiating lower customs duty rates and other trade barriers; the text of the General Agreement spelt out important rules, particularly non-discrimination.

Since 1995, the updated GATT has become the WTO’s umbrella agreement for trade in goods. It has annexes dealing with specific sectors such as agriculture and textiles, and with specific issues such as state trading, product standards, subsidies and actions taken against dumping.

Services 

Banks, insurance firms, telecommunications companies, tour operators, hotel chains and transport companies looking to do business abroad can now enjoy the same principles of freer and fairer trade that originally only applied to trade in goods.

These principles appear in the new General Agreement on Trade in Services (GATS). WTO members have also made individual commitments under GATS stating which of their services sectors they are willing to open to foreign competition, and how open those markets are.

Intellectual property  

The WTO’s intellectual property agreement amounts to rules for trade and investment in ideas and creativity. The rules state how copyrights, patents, trademarks, geographical names used to identify products, industrial designs, integrated circuit layout-designs and undisclosed information such as trade secrets — “intellectual property” — should be protected when trade is involved.

 Dispute settlement 

The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding is vital for enforcing the rules and therefore for ensuring that trade flows smoothly. Countries bring disputes to the WTO if they think their rights under the agreements are being infringed. Judgements by specially-appointed independent experts are based on interpretations of the agreements and individual countries’ commitments.

The system encourages countries to settle their differences through consultation. Failing that, they can follow a carefully mapped out, stage-by-stage procedure that includes the possibility of a ruling by a panel of experts, and the chance to appeal the ruling on legal grounds. Confidence in the system is borne out by the number of cases brought to the WTO — around 300 cases in eight years compared to the 300 disputes dealt with during the entire life of GATT (1947–94).

Objectives of WTO :

• Administering trade agreements
• Acting as a forum for trade negotiations
• Settling trade disputes
• Reviewing national trade policies
• Assisting developing countries in trade policy issues, through technical assistance and training programmes
• Cooperating with other international organizations

Structure  

The WTO has nearly 150 members, accounting for over 97% of world trade. Around 30 others are negotiating membership.

Decisions are made by the entire membership. This is typically by consensus. A majority vote is also possible but it has never been used in the WTO, and was extremely rare under the WTO’s predecessor, GATT. The WTO’s agreements have been ratified in all members’ parliaments.

The WTO’s top level decision-making body is the Ministerial Conference which meets at least once every two years.Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but sometimes officials sent from members’ capitals) which meets several times a year in the Geneva headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute Settlement Body.

At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS) Council report to the General Council.

Numerous specialized committees, working groups and working parties deal with the individual agreements and other areas such as the environment, development, membership applications and regional trade agreements.

Government organisation promoting export

PROMOTION OF  GLOBAL BUSINESS

With a view to making exports an effective instrument for promoting greater economic activity and employment, a number of schemes which have been in existence for some time now have been strengthened and improved upon while some new ones have been introduced.  A brief description of some of these schemes is given below:

I. Assistance to States for Development of Export Infrastructure and other activities (ASIDE) Scheme

The ASIDE scheme aims at encouraging the active involvement of State Governments for development of export infrastructure through assistance linked to export performance.  The scheme provides an outlay for development of export infrastructure which is distributed among the States, inter-alia, on the basis of the States’ export performance in the previous year. After the merger of EPIP, EPZ, CIB, EDF scheme in the ASIDE scheme, the on-going projects under these schemes are also being funded by the States from the resources provided under the ASIDE scheme. The specific purposes for which the funds allocated under the scheme that can be sanctioned and utilized are as follows: -

·        Creation of new Export Promotion Industrial Parks/Zones (including Special Economic Zones (SEZs)/Agri-Business Zones) and augmenting facilities in the existing Zones.

·        Setting up of electronic and other related infrastructure in export conclaves.

·        Equity participation in infrastructure projects, including the setting up of SEZs.

·        Meeting the requirements of capital outlay of EPIPs/EPZs/SEZs.

·        Development of complementary infrastructure such as roads connecting the production centres with ports, setting up of Inland Container Depots and Container Freight Stations.

·        Stabilizing power supply through additional transformers and islanding of export production centres, etc.

·        Development of minor ports and jetties of a particular specification to serve exports.

·        Assistance for setting up Common Effluent Treatment Plants.

·        Projects of national and regional importance.

·        Activities permitted as per the Export Development Fund in relation to the North East and Sikkim.

II.Marketing Development Assistance (MDA)

The Marketing Development Assistance (MDA) scheme has been formulated to stimulate and diversify the country’s exports with the following objectives:

• Assist individual exporters for export promotion activities abroad
• Assist Export Promotion Councils (EPCs) to undertake export promotion activities for their product(s) and commodities
• Assist approved organisations/trade bodies in undertaking limited exclusive non-recurring innovative activities connected with export promotion efforts for their members
• Assist EPCs to contest countervailing duty/anti dumping cases initiated abroad
• Assist Focus Area export promotion programmes in specific regions abroad like Focus LAC, Focus Africa, Focus CIS and Focus ASEAN+ 2 programmes
• Promote residual essential activities connected with marketing promotion efforts abroad

III. Market Access Initiative (MAI) Scheme

The Market Access Initiative (MAI) Scheme has been launched as a plan scheme to act as a catalyst to promote India’s exports on a sustained basis. The Scheme is based upon ‘focus product’ and ‘focus market’ concept. Under the scheme, assistance is extended to the Departments of Central Government and Organizations of Central/State Governments, Export Promotion Councils, Registered Trade Promotion organizations, Commodity Boards, Recognized Apex Trade Bodies, Recognized Industrial Clusters and Individual Exporters for product registration and testing charges for engineering products abroad. Assistance is given for the following components: -

·        Market Studies

·        Marketing projects which may include:

a)      Opening of showrooms

b)      Warehousing facility

c)      Display in international departmental stores

d)      Publicity campaign

e)      Participation in trade fairs, BSMs etc., abroad

f)        Research and product development

g)      Reverse visits of the prominent foreign buyers etc. from the project focus countries

• Export potential survey of the states
• Registration charges for product registration abroad for pharmaceuticals, biotechnology and agro-chemicals
• Testing charges for engineering products abroad
• To cottage and handicrafts units for similar activities and for developing the web site for virtual exhibition
• Studies on WTO related matters
• To industrial clusters for marketing study, participation in trade fair etc. abroad
• To any project/study which would further the objectives of the scheme

IV. Export Credit Guarantee Corporation of India Ltd. (ECGC)

In order to promote the country's exports by covering the risk of export on credit, the ECGC provides (a) A range of insurance covers to Indian exporters against the risk of non-realisation of export proceeds due to commercial or political causes and (b) Different types of guarantees to banks and other financial institutions to enable them to extend credit facilities to exporters on liberal basis.

V. National Export Insurance Account (NEIA)

The Cabinet Committee on Economic Affairs (CCEA) in its meeting held on 24.1.06 has approved the proposal for setting up a separate Fund with a corpus of Rs.2,000 crores called the National Export Insurance Account (NEIA).  The Fund will be maintained and operated by Export Credit Guarantee Corporation of India Ltd. (ECGC) and 20% of the risk is to be borne by the ECGC from its own funds. The objective of NEIA is to promote project exports from India, which will not take place but for the support of a credit risk insurance cover in the following cases:

• High risk on a single country;
• High value of a single transaction; and
• Large valued projects involving unusual or unconventional credit terms, which are beyond the normal, risk bearing capacity of ECGC.

VI. Export Credit

To make Indian exports compatible with the WTO norms, the Government through the Export–Import Bank of India, proactively endeavored to enhance the competitiveness of Indian exporters, while also striving to ensure that the Bank’s activities and financing initiatives keep pace with the discerning requirements of industry and trade. Initiatives have been taken for opening up new Branch(s) or to upgrade the status of the existing Branch of Indian Banks abroad and of Foreign Banks in India.

With a view to help the exporters, representations/complaints involving export credit/exchange control matters were also taken up with the Ministry of Finance and the Reserve Bank of India. The RBI has already taken the decision to continue Rupee Export Credit Interest Rates up to 30 April, 2006 and a Working Group consisting of the RBI, select banks and export organizations was set up in April, 2005 on export credit.

The function of this group is to review

(i)                  action taken on exporters’ satisfaction survey

(ii)                existing procedures for export credit

(iii)                Gold Card Scheme

(iv)               export credit for non-star exporters, and

(v)                 the current interest rate regulations in export credit.

 The RBI is to issue instructions to the Banks based on the recommendations of this Working Group.

VII. Incentives and Promotional Schemes for Agricultural Products & Aquaculture

In order to boost export of agricultural products, the Government provides various incentives through Commodity Boards/Council for infrastructure development, quality and quality control, market development and promotion, packaging, publicity, information dissemination etc. Vigorous efforts are also being made to gain access for our agricultural products through conclusion of SPS protocol with China, Japan and other important importing countries.

Promotional schemes for development of aquaculture and augmenting fresh water shrimps were taken up for increasing production for the purpose of export. The Mission Mode Programme was introduced for the development of shrimp and scampi culture, in Gujarat, Maharashtra and Orissa. Training programmes on implementation of Hazard Analysis Critical Control Programme (HACCP) were also organised. Subsidies were extended to exporters for setting up/modernizing/upgrading processing facilities with a view to achieve the level of international quality standards, including EU/HACCP norms.

VIII. Infrastructure Support

The Government provides transport/logistic support and resolves problems experienced by the trading community in the carriage of goods by courier, sea, air, rail and road in coordination with the concerned Ministries & Departments. It seeks to encourage greater containerisation, computerisation of cargo clearance and electronic data interchange, warehousing, setting up of air cargo complexes, inland container depots, container freight stations, etc.

As a result of these efforts, export and import have been facilitated through various orders of the Government. The condition of Bank guarantee for inland movement of customs bonded containers has been relaxed and the requirement of execution of Bank guarantee for the purpose of transhipment for all carriers of containerised cargo handling more than 1000 TEUs as import containers in a financial year has been waived.

The process of Sub- Manifest Transhipment Permits has also been simplified by the customs. There has been a constant endeavour to solve the problem of congestion in handling and clearance of containers at the Jawaharlal Nehru Port and the Inland Container Depot, Tughlakabad. The Government has also reduced the customs duty on the handling equipment being imported by the ICDs/ CFSs.

Single window clearance for proposals for setting up of Inland Container Depots/Container Freight Stations/ Air Cargo Complexes (ICDs/CFSs/ACCs) is implemented through an Inter-Ministerial Committee (IMC) since 1992. So far, 26 proposals for setting up Inland Container Depots/Container Freight Stations (ICDs/ CFSs) and Air Cargo Complexes (ACCs) have been approved by the Inter Ministerial Committee during the year.

IX. Electronic Commerce (EC) / Electronic Data Interchange (EDI) for Trade

The next five years is expected to witness a rapid growth in e-commerce which would have positive impact on small businesses that have established themselves as legitimate, trustworthy merchants. Most companies have initiated measures to create and execute an e-commerce strategy. The project entitled “Electronic Commerce (EC) / Electronic Data Interchange (EDI) for Trade (e-Trade)” is pursued in various trade regulatory and facilitating agencies like Customs, DGFT, Ports, Airports, RBI, Export Promotion Organisations (EPO), Exporters, Importers, Agents, CONCOR, Banks, etc. to facilitate international trade. The objectives of this project are to facilitate electronic delivery of services; to simplify procedures; to provide 24 hour access to users with their partners; to make procedures transparent; to reduce the transaction cost and time, and to introduce international standards and best practices.

India Trade Promotion Organisation

India Trade Promotion Organisation (ITPO) is the nodal agency of the Government of India for promoting the country's external trade. ITPO, during its existence of nearly three decades, in the form of Trade Fair Authority of India and Trade Development Authority, has played a proactive role in catalysing trade, investment and technology transfer processes. Its promotional tools include organizing of fairs and exhibitions in India and abroad, Buyer-Seller Meets, Contact Promotion Programmes, Product Promotion Programmes, Promotion through Overseas Department Stores, Market Surveys and Information Dissemination.

Computerized Accounting System

 

Introduction

Accounting is the method in which financial information is gathered, processed, and summarized into financial statements and reports. An accounting system can be represented by the following graphic.

The purpose of accounting is to provide information used in decision making. Accounting may be viewed as a system (a process) that converts data into useful information.

Computerised Accounting

Transaction processing system (TPS) is the first stage of computerised accounting system. The purpose of any TPS is to record, process, validate and store transactions that occur in various functional areas of a business for subsequent retrieval and usage.

TPS involves following steps in processing a transaction: Data Entry, Data Validation, Processing and Revalidation, Storage, Information and Reporting. It is one of the transaction processing systems which is concerned with financial transactions only.

When a system contains only human resources it is called manual system; when it uses only computer resources, it is called computerised system and when it uses both human and computer resources, it is called computer-based system.

The computerized accounting is one of the database-oriented applications wherein the transaction data is stored in well- organized database. The user operates on such database using the required interface and also takes the required reports by suitable transformations of stored data into information. Therefore, the fundamentals of computerised accounting include all the basic requirements of any database-oriented application in computers.

Computerised accounting systems refer to packages like

·        Sun

·        MYOB

·        Mamut

·        Sage

·        QuickBooks

·        Tally

·        Cash Manager

·        Best Books etc

A good computerised accounting system should possess the following characteristics:

• Ability to produce accounts at a short notice
• Should provide audit trail
• Compatibility with external programmes
• Should detect error
• Should enable internal controls to be embedded.

Purposes of CAS:

Business Management Softwares, Financial Accounting, Inventory, Invoicing, Sales / Purchases Order Processing, Excise Documentation, Jobwork Processing, Sales Tax, Income Tax, Service Tax PF

Salient Features of Computerized accounting

1. Fast, Powerful, Simple and Integrated

Computerized accounting is designed to automate and integrate all the business operations, such as sales, finance, purchase, inventory and manufacturing. With Computerized accounting, accurate, up-to-date business information is literally at the fingertips. The Computerized accounting combine with enhanced MIS, Multi-lingual and Data organization capabilities to help the company simplify all the business processes easily and cost-effectively.

2. Complete Visibility

Computerized accountings giving the company sufficient time to plan, increase the customer base, and enhance customer satisfaction. With Computerized accounting the company will have greater visibility into the day-to-day business operations and access to vital information.

3. Enhanced User Experience

Computerized accounting allows the company to enter data in a variety of ways which makes work a pleasure. Adapting to the specific business needs is possible.

4. Accuracy, Speed

Computerized accounting has User-definable templates which provides fast, accurate data entry of the transactions; thereafter all documents and reports can be generated automatically, at the press of a button.

5. Scalability

Computerized accounting adapts to the current and future needs of the business, irrespective of its size or style.

6. Power

Computerized accounting has the ability to handle huge volumes of transactions without compromising on speed or efficiency.

7. Improved Business Performance

Computerized accounting is a highly integrated application that transforms the business processes with its performance enhancing features which encompass accounting, inventory, reporting and statutory processes. This helps the company access information faster, and takes quicker decisions. Computerized accounting also guarantees real-time optimization of operations and enhanced communication.

7. Quick Decision Making

Generates real-time, comprehensive MIS reports and ensures access to complete and critical information, instantly.

8. Complete Reliability

Computerized accounting makes sure that the critical financial information is accurate, controlled and safe from data corruption

LIMITATIONS OF A COMPUTER AND COMPURISED ACCOUNTING

The limitations of computer are depending upon the operating environment they work in. These limitations are given below as :

1. Cost of Installation

Computer hardware and software needs to be updated from time to time with availability of new versions. As a result heavy cost is incurred to purchase a new hardware and software from time to time.

2. Cost of Training

To ensure efficient use of computer in accounting, new versions of hardware and software are introduced. This requires training and cost is incurred to train the staff personnel.

3. Self Decision Making

The computer cannot make a decision like human beings. It is to be guided  by the user.

4. Maintenance

Computer requires to be maintained properly to help maintain its efficiency. It requires a neat, clean and controlled temperature to work efficiently.

5. Dangers for Health

Extensive use of computer may lead to many health problems such as muscular pain, eyestrain, and backache, etc. This affects adversely the working efficiency and increasing medical expenditure.

Role of computers in accounting

The most popular system of recording of accounting transactions is manual which requires maintaining books of accounts such as Journal, Cash Book, Special purpose books, ledger and so on.

The accountant is required to prepare summary of transactions and financial statements manually. The advanced technology involves various machines capable of performing different accounting functions, for example, a billing machine. This machine is capable of computing discount, adding net total and posting the requi ite data to the relevant accounts.

With substantial increase in the number of transactions, a machine was developed which could store and process accounting data in no time. Such advancement leads to number of growing successful organisations.

 A newer version of machine is evolved with increased speed, storage, and processing capacity. A computer to which they were connected operated these machines.

As a result, the maintenance of accounting data on a real-time basis became almost essential. Now maintaining accounting records become more convenient with the computerised accounting. The computerised accounting uses the concept of databases.

For this purpose an accounting software is used to implement a computerised accounting system. It does away the necessity to create and maintain journals, ledgers, etc., which are essential part of manual accounting. Some of the commonly used accounting softwares are Tally, Cash Manager, Best Books, etc.

Accounting software is used to implement a computerised accounting. The computerised accounting is based on the concept of database. It is basic software which allows access to the data contained in the data base. It is a system to manage collection of data insuring at the same time that it remains reliable and confidential.

Components of Computerised accounting software:

1. Preparation of accounting documents

Computer helps in preparing accounting documents like Cash Memo, Bills and invoices etc., and preparing accounting vouchers.

2. Recording of transactions

Every day business transactions are recorded with the help of computer software. Logical scheme is implied for codification of account and transaction. Every account and transaction is assigned a unique code. The grouping of accounts is done from the first stage. This process simplifies the work of recording the transactions.

3. Preparation of Trial Balance and Financial Statements

After recording of transaction, the data is transferred into Ledger account automatically by the computer. Trial Balance is prepared by the computer to check accuracy of the records. With the help of trial balance the computer can be programmed to prepare Trading, Profit and Loss account and Balance Sheet.

NEED AND REQUIREMENTS OF COMPUTERSIED ACCOUNTING

The need for computerised accounting arises from advantages of speed, accuracy and lower cost of handling the business transactions.

1. Numerous Transactions

The computerised accounting system is capable of handling large number of transactions with speed and accuracy.

2. Instant Reporting

The computerised accounting system is capable of offering quick and quality reporting because of its speed and accuracy.

3. Reduction in paper work

A manual accounting system requires large physical storage space to keep accounting records/books and vouchers/ documents. The requirement of stationery and books of accounts along with vouchers and documents is directly dependent on the volume of transactions beyond a certain point. There is a dire need to reduce the paper work and dispense with large volumes of books of accounts. This can be achieved by introducing computerised accounting system.

4. Flexible reporting

The reporting is flexible in computerised accounting system as compared to manual accounting system. The reports of a manual accounting system reveal balances of accounts on periodic basis while computerised accounting system is capable of generating reports of any balance as when required and for any duration which is within the accounting period.

5. Accounting Queries

There are accounting queries which are based on some external parameters. For example, a query to identify customers who have not made the payments within the permissible credit period can be easily answered by using the structured query language (SQL) support of database technology in the computerised accounting system. But such an exercise in a manual accounting system is quite difficult and expensive in terms of manpower used. It will still be worse in case the credit period is changed.

6. On-line facility

Computerised accounting system offers online facility to store and process transaction data so as to retrieve information to generate and view financial reports.

7. Scalability

Computerised accounting system are fully equipped with handling the growing transactions of a fast growing business enterprise. The requirement of additional manpower in Accounts department is restricted to only the data operators for storing additional vouchers. There is absolutely no additional cost of processing additional transaction data.

8. Accuracy

The information content of reports generated by the computerised accounting system is accurate and therefore quite reliable for decisionmaking. In a manual accounting system the reports and information are likely to be distorted, inaccurate and therefore cannot be relied upon. It is so because it is being processed by many people, especially when the number of transactions to be processed to produce such information and report is quite large.

9. Security

Under manual accounting system it is very difficult to secure such information because it is open to inspection by any eyes dealing withthe books of accounts. However, in computerised accounting system only the authorised users are permitted to have access to accounting data. Security provided by the computerised accounting system is far superior compared to any security offered by the manual accounting system.

Basic requirements of the computerised accounting system

The basic requirements of any computerised accounting system are the followings:

1. Accounting framework

It is the application environment of the computerised accounting system. A healthy accounting framework in terms of accounting principles, coding and grouping structure is a pre-condition for any computerised accounting system.

2. Operating procedure

A well-conceived and designed operating procedure blended with suitable operating environment of the enterprise is necessary to work with the computerised accounting system.

 CODIFICATION AND GROUPING OF ACCOUNTS:

Codification:

    The process involving collection and systematic arrangement of all accounting items relevant to the company either by subject or by the statutory provisions, rules, and regulations that govern the accounting system.

The major groups or heads could be Assets, Liabilities, Revenue Receipts, Capital Receipt, Revenue Expenditure, and Capital Expenditure.

The Codes are been classified to each section and grouping of accounts can be done effectively.A coded accounting system is more convenient where there are numerous
account heads and the complexity is high. A proper codification requires a systematic grouping of accounts.

The sub-groups or minor heads could be “Cash” or “Receivables” or “Payables” and so on. The grouping and codification is dependant upon the type of organization and the extent of sub-division required for reporting on the basis of profit centres or product lines. There could a classification based on geographical location as well.

Let us see an example about the codification process:

ASSETS
CASH (100-129)

101 Petty Cash
110 Main Cash
112 Cash at Bank
115 Cheques in hand

RECEIVABLES (130-139)

130 Debtors – Secured
132 Debtors – Unsecured
139 Other

INVENTORIES (140-179)

140 Stores and Spare Parts
150 Raw Materials
160 Work in progress
170 Finished Goods

 Here account codes were 3 digits for assets and liabilities and 4 digits for revenue and expenditure. However, many organizations prefer to have uniformly 4 digits.

An analysis of the Indian Bond Market

An analysis of the Indian Corporate Bond Market

Introduction

The Corporate Debt Market in India is in its infancy, both in terms of the market participation and the structure required for efficient price discovery. Primary corporate debt market is dominated by non-banking finance companies and relatively a very small amount of funds are raised by manufacturing and other service industries through this market.

Indian firms are still seeking bank finance as the path to fulfill the funding requirements. While, the secondary market activities in corporate bonds have not picked up till date. Efforts of Securities Exchange Board of India (SEBI) and the stock exchanges to bring the trading to electronic stock exchange platforms have not yielded desired results.

On the flip side, the government securities market has grown exponentially during last decade. This is mainly down to the many structural changes introduced by the Government and Reserve Bank of India to improve transparency in the market dealings, method of primary auctions, deepening the market with new market participants like Primary Dealers, borrowings at market determined rates, and creating technology platforms like NDS to recognize the institutional characteristics of the market. The same kind of impetus has been lacking in the corporate bond markets in India and as a result this major source of corporate funding is all but non-existent.

The US and other countries experience with corporate bonds clearly bears out that the Indian private corporate sector is adopting a myopic approach by overlooking the advantages of financial disintermediation achieved through accessing the bond markets directly rather than going down the loan path. Sooner it gets out of the habit of depending excessively on the banks, institutions, and the private placement market, the better it would be for it from a long-term point of view.

The problem of asset - liability mismatches is catching up with the banks and their appetite for term debt would decline in future. Since DFI's access to long-term funds had dwindled, they are not in a position to meet demand for term funds of industry and infrastructure sectors when investment activity picks up from the present low levels. When the demand term debt increases significantly to finance high level of investments, continued excessive dependence on banks is also not in the interest of good credit-worthy borrowers, as they would end up paying up more than what they would have to pay if they decide to raise funds from the market directly.
For creating robust corporate debt markets it is desirable that appropriate policy reforms are introduced to encourage building up of necessary market infrastructures that facilitate growth of an active primary market as also a vibrant and transparent secondary market.

The Demand Side Scenario

The corporate bond market in India has suffered because of the attitude of the various market participants:-

Corporates - Since the cash credit system of banks operates in effect like a loan in perpetuity, many corporates prefer it to bond financing where the amount has to be returned on a specific date. Also, corporates do not relish the idea of getting a credit rating done to calculate the premium to be charged over the zero-risk government bond of comparable maturity.

FIIs are major players in the equities market. However, due to the ceiling on their investment in the debt market (currently there is a cumulative sub-ceiling of $0.5 bn on investment in corporate debt), they are present only in a limited way in the bond market.

Pension funds and the Insurance Sector could be another constituency, but the absence of pension funds and low insurance penetration has meant limited demand for long-term bonds.

Households could be a big constituency, but they, too, are almost completely absent from the market, in part due to the lack of an efficient legal system that is critical to investor confidence, and unhappy experience with debenture trustees.

Supply Side Scenario

For too long Corporates have got accustomed to raising loans from banks and term lending institutions as they find this route to be relatively hassle-free. They feel that it is far more difficult to raise funds through bond flotation as it involves convincing a larger number of highly demanding investors, many of whom may be raising far more searching questions about the viability of the projects for which funds are being sought.

There is a problem of illiquidity. A large part of the market does not mark-to-market the corporate bond portfolio. As a result, once any bond goes into the books, it does not come out. This takes away liquidity from the market.

Trading is concentrated in AAA - rated bonds, as they carry the highest safety and are the most liquid. A large part of the market, including insurance companies, provident funds and banks, have restrictions on private sector paper. And thus the bonds of public sector units are much more liquid than private sector bonds.

Benefits of an Efficient Market for Various Market Participants

Corporates

An efficient bond market helps corporates reduce their financing costs. It enables them to borrow directly from investors, bypassing the major intermediary role of a commercial bank. They still have to go through underwriters, brokers and dealers to raise debt finance. But since competition among them is intense compared to banks, it helps to push costs down.

A well-functioning corporate bond market allows firms to tailor their asset and liability profiles. If companies fear they will not be able to raise long-term resources, they are likely to stay away from long-term investments or entrepreneurial ventures that have a long-term payoff. In the long run, this can affect economic growth.

The Financial System

The corporate bond market could exert a competitive pressure on commercial banks in the matter of lending to private business and thus help improve the efficiency of the capital market as a whole.

A well developed corporate bond market would lead to a reduction in the systemic risk and probability of crisis. This is because the presence of such an environment is associated with greater accounting transparency, a large community of professional financial analysts, respected rating agencies, a wide range of corporate debt securities and derivatives demanding sophisticated credit analysis, an opportunity to make private placements, and efficient procedures for corporates.

Also in case of the present system, if a bank extends term loans it is stuck up with the borrower until the loan matures. It cannot easily reshuffle its portfolio of term loan assets to adjust its developing asset liabilities. It would be in the interests of banks themselves that the corproates meet at least a part of their funding requirements through the bond route so that they have freedom to pass on part of their portfolio to others whenever it suits them.

Investors

For the investors it is important that this segment develops fast and becomes liquid so as to provide another option for diversification of risk. Also, the present bond market in India is different from that of the old times, in the sense that there are players who are out there to make money from debt instruments, rather than just invest funds in some interest-bearing government securities to fill up asset-liability `gaps'. The modern treasury manager will have to take advantage of the small jumps in bond prices on account of policy announcements and changes in demand driven by the FIIs to make money, through the first-mover advantage.

Thus despite the benefits that such a market can bring, we have virtually no corporate bond market (Unlike developed markets). Thus in India, development of a vibrant corporate debt market is essential, especially to reduce the cost of borrowing of the corporate sector at a phase when the manufacturing sector in India is on an upswing.

Ways of developing the Corporate Bond Market

Infusion of Liquidity

Any liquid market in corporate bonds requires a few basic ingredients -

Consolidation of Privately Placed Bonds

improved disclosure standards

good quality papers

The major concern for RBI is the large number of private placements/unlisted bonds for which the disclosure and documentation standards are unsatisfactory. There is a need to have a standard practice in this regard (mandatory credit ratings), irrespective of whether the debt is publicly issued or privately placed. Also consolidation in this market is necessary to strengthen the issuance process to create large floating stocks which would enhance liquidity in the market.

Reliable Credit Rating Agencies
A credit rating system is an essential component of any well-functioning corporate bond market, as it encourages the most efficient allocation of capital raised by debt issues. Such a system:

1. gives the quality and quantity of information on issuers
2. provides the measurement of the relative risk of bonds in question,
3. provides bond issuers an incentive for financial improvements
4. It also helps the investor by compensating for the higher credit risk implied by a lower rating and encourages companies to improve their financial performance.

Setting up a Trading Platform

Unified exchange-traded market + well-functioning clearing and settlement mechanism

If corporate bond market needs to be developed efficiently, it would be desirable to adopt a flexible approach that allows adoption of different types of market structures that wouldbring more transparency into the existing system and create infrastructure that would bring trading and settlement efficiency.

It is therefore desirable that banks and institutions are given freedom to set up their own trading - cum - clearing and settlement system that would facilitate their OTC deals. Also, an efficient corporate debt market requires proper order-matching and guaranteed settlement system. Restricting trading to a single exchange may be counter-productive in the long run. There are well defined clearing and settlement mechanism in place in global markets which can form role models for Indian corporate bond market as it has almost the same institutional structure. A trading-cum-clearing corporation set up by leading market participants on for - profit model may be suitable for clearing and settlement purposes.

Developed Government Securities and Bond Market

A Developed Government securities market provides market infrastructure and supports a profitable, skilled dealer community and provides the benchmark yield curve for default risk-free securities. The leading role of the government bond market is more obvious as a well functioning government bond market helps facilitate the growth and functioning of a corporate bond market by establishing a benchmark yield curve for pricing fixed-income instruments like bonds.

Free Market Forces - for Price Discovery

The interest rates as reflected by the market prices of corporate debt instruments are influenced basically by the credit-worthiness of the borrowing entities and the prevailing level of interest rate at which the government borrows for similar maturities.. The same degrees of freedom as are currently applicable to the equity market should also be made applicable to the corporate debt without causing any problem to the financial system.

A corporate entity with good track record, sound financial position and expected good cash flows enough to service the debt can raise funds at highly competitive rates, which are not significantly above the rate at which government raises funds with instruments of similar maturity. The level of interest for the debt issued by a corporate with good credit rating will be higher than the rate applicable to the government loan of similar maturity, with the difference explaining the credit risk attached to a corporate debt.

Uniform TDS

TDS on interest income from corporate bonds is not uniformly applicable to all the investors. While insurance companies and mutual funds are exempt from the provisions of TDS all other market players are subject to it in respect of interest paid on corporate bonds.

An automated computerized trading system and a meaningful price discovery process cannot be introduced because of the differing TDS treatment for different market player. Therefore it is desirable to have a uniform TDS rule for all the market players.

Development of Primary Market

Creating an enabling environment for issuance of bonds in the primary market is very important for the development of corporate bond market. A vibrant primary market leads to the growth of secondary market.

The issues that need to be addressed for the development of the primary market in corporate bonds are:

1. Enhancing the Issuer base: As discussed in the supply side problem, the corporate entitities over a period of time have become used to a culture of approaching banks for meeting all their financing requirements as they find this route to be relatively hassle-free. It would be in the interests of banks themselves that the corporates meet at least a part of their funding requirements through the bond route. Hence banks, as a group strategy, should consider advising their better credit rated corporate borrowers to meet a part of their term loan requirements in the form of bonds.

2. Market Makers: Market makers play a very important role in development of any bond market .They provide psychological support as well as exit options to investors to buy or sell bonds whenever desired by the investors. The market making in corporate bonds is necessary as the market is in a nascent stage and it would require the psychological comfort in the beginning. Investment banks that help corporates to raise money from the market can possibly be roped in to market making in the bonds which they have helped in issuance.

3. Enhancing Investor Base: - a solution to the supply side problems. Globally provident and pension funds are large investors in corporate bonds.but in India the underdeveloped and illiquid conditions of the corporate bond market do not attract these investors.

Currently, these funds are allowed to invest only upto 10 percent of the accruals in a year in private corporate bonds and 40percent of the corpus can be invested in bonds issued by public sector undertakings.

As the Risk profile of a large number of the PSUs established by the state governments is not materially different from that of several private corporate sector companies. Hence, investment that rating quality as indicated by the recognised rating companies should become the main criteria for investment in corporate bonds and not category of bonds in terms of issuers. Thus the guidelines issued to PFs and EPFs need not discriminate between State Govt. PSUs and private corporate sector entities.

Co-operative banks are permitted to investonly a small part of their deposits in bonds issued by PSUs and only scheduled co-operative banks are allowed to invest in private sector bonds. Allowing all co-operatives banks to invest in high quality corporate bonds would be helpful as cooperative banks have large deposits.

Retail investors should be encouraged to participate in the market through stock exchanges or to approach banks that would be willing to market make bonds from their own portfolio through their branch network. These investors may also participate in the market through mutual funds.

FII investment in corporate debt is limited at present to USD 500 million without any tenor restrictions. FII participation in debt market has helped many emerging markets . In the case of India these participants invest heavily in equities and have no mechanism to include debt in their portfolio. In order to encourage flow of funds the sub limit needs to be removed and the limit should be on an overall basis fixed for debt instruments including government securities.

In addition to this the other that factors which could help boost liquidity in bond markets relate to the existence of a diversified and heterogeneous investor base. Diversity of investment horizons, risk tolerance levels and investment objectives among investors which will provide opportunities for trading and in turn help in enhancing market liquidity and efficiency of pricing. The role of the fund management industry is also important, particularly if regulators provide them with incentives to traded.