Cost audits have brought efficiency

PUNE: In the modern-day business world where competition rules supreme, cost audit, which checks whether the resources of a business organisation  have been applied optimally, has been instrumental in inculcating a sense of efficiency, Kunal Banarjee, President of the Institute of Cost and Works Accountants of India, said on Thursday. Banarjee was speaking on the occasion of the three-day Golden Jubilee National Convention of the institute being held here. 



"In the WTO regime, we need to enhance and retool the mechanism of cost audit to enable performance management as a part of governance framework. We also need the mechanism to particularly build up appropriate cost database to fight anti-dumping measures imposed against us in foreign markets, as also to detect the cases of dumping in our market by foreign competitors.

Such an alignment with the governance framework by linking up with the role of audit committee and in turn presenting to the stakeholders a reliable, standardised and industry-wide database is possible only by way of statutory cost reporting and cost accounting," he said. 



Banarjee said that costing and cost accounting was not invented for administered pricing. "The key word today is global competition. The domain of cost accounting has been enhanced and enriched to be management accounting for driving the performance amidst global competition, while also supporting governance." 



According to Banarjee, in the present economic scenario, there is an urgent need to extend the existing principles and practices of cost accounting and cost audit to the entire spectrum of Indian industries, both in the manufacturing sector and services sector. "Similarly, social sectors, such as healthcare and education; all public utilities and essential services; various government projects and departmental undertakings also need the services of cost accountants to improve productivity, build competence, reduce wastage and inefficiencies in utilisation of scarce national resources," he stated. 



In context of the recent financial fraud in the corporate sector, it is a clear cut pointer that regulators should move from the compliance-orientated framework to a new paradigm of enterprise governance, Banarjee said, adding that the country's corporate reporting system needs to be strengthened through appropriate and efficient audit practices, and that there is an urgent need to position cost audit in the enterprise governance structure. 



"Sebi has desired a second audit of all the listed companies. We feel that such an audit should be conducted by a firm of cost accountants who have greater capabilities to focus on input-output structures in an enterprise and find justification and correctness of the declared profits," he noted.