There is a thought-provoking question that what are the benefits of changing the syllabus for CMA students? To answer this question we need to know that when doing preparation we would be reading ten years question paper. So, there is no drastic change in the subject and question paper. Minor changes would be incorporated for the corporate level changes. For example, in the CMA examination, there are two papers called direct tax and indirect tax. Both are from the same realm of taxation. This detailed explanation of the subject increases the opportunity of learning more and scoring more in the taxation subject.
For every 5 years, the CMA syllabus change is expected. After 2016 the next change is predicted as 2021. CMA 2020 syllabus change states that some concepts are becoming obsolete and some are changed as per the market conditions. This blog brings out the analysis to understand the challenges with the international market and accounting system which urges for the changes in the CMA current syllabus. CMA’s new syllabus is expected in the year 2021 with omitting certain chapters and incorporating changes as per the current market. Let me take implications of economic downturn with two crucial concepts to transfer pricing and Bankruptcy in MNC companies.
Challenges with transfer pricing in an economic downturn
Transfer price is the price of the raw material and finished goods as per the location of the center. Companies that operate around the globe fix the price depending upon the allocation of resources, production, performance, and profits. The evaluation of price with a subsidiary company depends upon many factors. Some MNC companies declare the subsidiary company as a Standalone Company and some MNC companies declare it as a branch office. Transfer price implies taxable income and shareholder wealth. To eliminate the risk factor companies operating around the globe need to understand the laws related to transfer pricing.
In times of economic downturn, the transfer price needs to be adjusted with real-time data. Transfer pricing needs to adjust the loss that is arising out of the subsidiary company, price changes due to current economic conditions, and royalty payments. The companies think about the long-term relationship with the distributors, suppliers, creditors, customers, and debtors. The standard amount of transfer price makes the challenges associated with price management as easy. As the pandemic situation leads to a downturn in the economy the size of the collapse in the demand for the product has an impact on the expenses and prices. To decide about the reasonable distributor margin US companies take distributor profit from three years moving average method. The agreement with the distributors between US Company and Italian distributor requires changes due to the distribution of losses. So, the treatment for the operating loss and tax payment differ from country to country. CUP method, resale price method or resale minus method, and cost-plus method are the three methods used to calculate the transfer price. The transfer price in recent times is evaluated after considering the real-time analysis and not on a standard basis. Hence, the chapter transfer price is omitted from the CMA revised syllabus.
Changes in Bankruptcy law around the globe because of pandemic
From logical thinking, it is anticipated that the economic downturn brings more stories about bankruptcy. Pre-mature bankruptcy leads to power changes. So, G7 countries instructed the companies to change the bankruptcy procedures. In countries like France, Italy, and Germany the obligation for bankruptcy has been temporarily suspended. The government helps for the loan sanction to the creditors to provide support for the additional liquidity.
The journal of Political economy in the year 2008, states that restructuring the operations during bankruptcy reduces the number of bankruptcies with the companies. The three plans of the UK government as of June 2020 emphasize three key points. They are Rescue plan, Moratorium, and termination clauses. The moratorium is for two months to help the companies survive and initiating the rescue plan. If the creditors and court approve the rescue plan then the company gets an alternative procedure for insolvency. The termination clause states that the suppliers need to continue the contracts after the declaration of the moratorium. This is to help the company to restructure the operations. There is another viewpoint from the economists that if the insolvent companies are not allowed to close, then it leads to an unhealthy allocation of resources. So, the bankruptcy chapter is omitted from the CMA final exam syllabus as it depends upon the real-time environment.
The circulars and notifications of ICMAI elaborate on the 2020 CMA syllabus changes. The syllabus change is to incorporate the current economic changes with the business processes. This helps for equipping the pertinent skills of the CMA students. Future corporate companies demand skills for understanding the fast-paced working environment. Behind every successful business analysis, there is a cost and management accountant in the companies. ICAI institute prepares the students for the changing business environment.