“It is always challenging to initiate a cost control or cost reduction measures in an entity for many reasons. Because it may induce labor unrest, unavailability of raw materials, risk of losing market share etc., said Abul Bashir Khan FCMA, Chief Financial Officer (CFO) of SMC Enterprise Limited in an exclusive interview with Bangladesh Post.
He said in this critical scenario CMAs can play vital role as the cost reduction/control can be the only option to offsetting falling profit. They can identify the short term and long-term cost savings initiatives.
Replying to several queries made by Bangladesh Post, Abul Bashir Khan FCMA elaborated different aspects related to accountancy and cost management, mentioning the problems, prospect and challenges of the sector.
We produce the excerpts of his interview in the special supplement, brought out by Bangladesh Post.
Bangladesh Post: Can you explain the key differences between cost accounting and management accounting, and how they are applied in the financial management of an organization in Bangladesh?
Abul Bashir Khan: There are not many differences between the Cost accounting and Management accounting now-a-days but to draw a distinctive fine line between these two is Cost accounting mainly used for business to measure income and inventory valuation purpose following accounting standards for external reporting purpose. On the other hand Management accounting is purely focuses on the internal customers i,e the management of an organization will take decision on the basis of management accounting information. More precisely cost accounting is an essential part of management accounting and also a part of financial accounting-to the extent that it satisfies the requirement of external financial reporting.
Bangladesh Post: In the Bangladesh’s context, what are the most significant challenges that companies typically face when it comes to cost control and cost reduction, and how can a CMA address these challenges?
Abul Bashir Khan: Considering the current context of the country and global economic scenario it is very difficult to ensure the bottom line i,e profit. So, every entity is trying to reduce the cost or control the cost to maintain the projected profit. But it is always challenging to initiate a cost control or cost reduction measures in an entity for many reasons. Because it may induce labor unrest, unavailability of raw materials, risk of losing market share etc.
In this critical scenario CMAs can play vital role as the cost reduction/control can be the only option to offsetting falling profit. They can identify the short term and long-term cost savings initiatives.
Bangladesh Post: Could you describe your experience with Financial statement analysis for manufacturing industries in Bangladesh? Share an example of a successful cost-saving initiative you've implemented.
Abul Bashir Khan: Usually financial statements provide historical data but most of the users of F/S are concerned with what will happen in the future. So, there lies the role of the analysts as they can give insights to the users regarding the financial matters. Trend analysis, comparatives and ratio analysis are commonly used to assess financial health of a manufacturing entity. The commonly used tools are COGS%, CM%, GP/NP%, EPS, PE ratio, ROCE,Current Ratio, Quick Ratio, Inventory turnover ratio, D/E ratio etc.
One of the successful costs saving project in our company was to reduce the cost on OR Saline aluminum foil which was possible through proper analysis of cost by reducing the thickness and increasing the productivity.
Bangladesh Post: How do you stay updated on changes in the regulatory environment related to accounting and taxation in Bangladesh, and how would you ensure compliance in a dynamic regulatory landscape?
Abul Bashir Khan: We should continuously keep an eye on the accounting and taxation related regulatory guidelines, policies and procedures and in close connections with different professional networks so that any changes occur should immediately came into our notice. Accordingly, we should react on the changes for the better compliances. Otherwise it is very difficult to keep track on the compliances. One thing we must remember that non-compliances are not cost savings rather ultimately it will come back as a big cost at the end.
Bangladesh Post: Can you outline the steps you would take to develop a budget for a medium-sized Bangladeshi business and explain how you would monitor and control it throughout the fiscal year?
Abul Bashir Khan: Budget is a very effective toll for ensuring overall internal control of a business firm. Every business entity has their own mechanism to prepare the budget but commonly used procedure or steps that starts from sales forecast, then accordingly production and sourcing budget of raw/packing materials, then labor, direct costs and factory overheads etc comprising the production cost, then selling and distribution, administrative and marketing budget to get the projected profit & loss statement. The component wise projected budget then to be monitored periodically such as monthly, quarterly, yearly etc.
Bangladesh Post: What methodologies or tools do you use for cost allocation in a service-based industry in Bangladesh? How do you ensure fairness and accuracy in allocating costs?
Abul Bashir Khan: The cost allocation method in a service industry is not very different from other industry. All the established method like direct cost, stepdown, reciprocal, activity based, time based, space, revenue and cost pool-based allocation methods are being followed. The fairness and accuracy in allocating cost depends on the nature of the service industry which reflects how cost are incurred and supportive for effective decision making.
Bangladesh Post: What is your advice for accountants for long-term career aspirations and how do you envision themselves contributing to the field of cost and management accounting in Bangladesh?
Abul Bashir Khan: Developing skills through learning and knowledge is the key to success. I mean the analytical skill, communication skill, relationship and network, creativity, business acumen and tech savvy. I will advise to choose CMA profession which will help to develop their career significantly.
Without the CMA degree it would be very difficult for me to achieve the top position in finance of a large organization. It is very necessary to understand the core values of an organization which can be a great inspiration for career goal.
Bangladesh Post: How you see the International Accounting Day and what is your advice for the young accountants of Bangladesh on the occasion of this day?
Abul Bashir Khan: I am really happy to see the awareness and initiatives to observe the day in a befitting manner among the professional bodies as well as private enterprises. This is the indicators of development of the accounting profession in Bangladesh.
My advice to the young generation accountants to develop their skills though learning and knowledge is the key to success. I mean they have to improve their analytical skill, communication skill, relationship and network, creativity and businessacumen.I wish the International accounting day 2022 a great success.