Case Study

Raghu ram has just been promoted to the designation of senior manager in the Finance Department of
Shaurya Cements Limited; an NSE listed public company based out of Hyderabad and is expected to
report to the corporate office from 1st January 2020 onwards. The company has 4 manufacturing units in
Telangana and Andhra Pradesh and Raghu was heading the plant finance division till recently. With the
promotion, he is elevated to the corporate office and will join the corporate finance team in the
company. He joined the company in early 2010 as an ‘Accounts Executive’ and has steadily risen in
position in the last 10 years through sheer dedication and commitment to the company. A commerce
graduate by qualification, his hand-on experience and a good awareness of business allowed him to
implement many plant level best practices to improve efficiency and cost savings in the manufacturing
unit under his control. In fact, the policies introduced by him in his unit were adopted by the
management in other units as well. This promotion is seen as an endorsement of his capabilities, skill
and dedication by the company management and also a testament of his success.

In the words of Raghu ram himself, “As exciting as the promotion is, the new role definitely is more
challenging as it requires me to move from ‘Finance Planning & Analysis’ to ‘Financial Reporting’”. It is
true to an extent as he is joining the CFO team with this promotion and is expected to work on MIS and
preparation of financial statements.

One of his first observations in his new role is the presence of a full-fledged team for ‘revenue
recognition’. While he already knew that revenue recognition reporting requires statutory compliance as
well, he was surprised by the amount of work that goes into it. In his mind, he was thinking, “How
difficult would it be to recognize revenue on the basis on Tax Invoice raised on the customer??”

In his previous role, the scope of reporting was primarily limited to Plant level MIS on fund management
and efficiencies. It was limited to an Excel Statement and a fortnightly review presentation sent to the
corporate office. However, in his new role, the dimensions of reporting have increased and the
emphasis on working papers and documentation of support workings for the financial statements is
extensive. Sensing Raghu ram’s skepticism in the need for such extensive documentation, CFO explained
to him that, “Plant level reporting is Specific Purpose reporting and is mostly for internal audience who
are also well aware of the operations of the plant. It is mainly for performance review and decision
support functions. However, financial statements as prepared by us and adopted by the Board of
Directors serve a much bigger role than that. These statements along with the statutory auditor’s report
serve the purpose of maintaining the trust and reliability of information shared by the company with the
stakeholders. Given the stakes involved, the documentation has to be extensive for a statutory auditor to
verify and express his opinion on the financial statements presented by us”. At this point, Raghu Ram
made a rather interesting observation, “So, the statutory auditor seems to be liable if there are any
mistakes or misstatements in the financial statements”.

Despite the challenges and cultural change from a relatively simpler plant level management to
corporate management, Raghu ram adjusted to the new role fairly well. Three months into his new role,
he was now confident to express his views and opinions in review meetings as well. In one such review
meeting where the finalizing quarterly financial statements was on the agenda, there was a contentious
issue of Inventory recall towards the end of the quarter ended March 2021. In the words of CFO, “This
Quarter has been a little soft and there is this issue of inventory recall as will which might impact
‘Revenue, Earnings, Working Capital, Stock Price, Investor Confidence etc.’ in the short run”. To this
point, Raghu ram offered a solution to defer recording the ‘Inventory recalled’ into the books of
accounts by a week and manage the earnings etc. His view is that, as it is a temporary issue that can be
easily managed, there is no need to reveal it in this quarter and risk adverse reactions.

Based on the Case-let given above address the following questions

1. From your viewpoint, what is the difference in the scope of Financial Planning & Analysis as
against Financial Reporting? (2 Marks)

2. Do you agree with Raghu Ram’s view point on ‘Revenue Recognition’? What are the various
factors that need to be considered to comply with Indian Accounting Standards? (2 Marks)

3. Do you agree with the conclusion framed by Raghu ram about the responsibility of statutory
auditor regarding the preparation and presentation of financial statements? (2 Marks)

4. In the context of CFO’s statement, elaborate on the role played by the ‘Financial Statements’ as
reported by the company. (2 Marks)

5. Give your views on Raghu ram’s opinion of managing the earnings to safeguard the interests of
company and investors. (2 Marks)