ICWAI makes six standards mandatory

The Institute of Cost and Works Accountants of India (ICWAI), the apex body regulating the cost accounting profession in the country, has made six cost accounting standards (CAS) mandatory from April 1, 2010.

 

 

These standards are for classifications of costs, capacity determination, overheads, cost of production for captive consumption, determination of average cost of transportation and material cost. These standards would bring in principle-based accounting to give greater freedom to companies to treat different components of cost in an effective manner, bringing in flexibility and reducing compliance costs for companies. “These standards would be applicable for all cost accountants in practice,” said Kunal Banerjee, president of ICWAI. At present, these standards are recommendatory only.

 

 

However, from April next year, all practising cost accountants will have to make use of these standards while carrying out cost audits. However, the standards are not mandatory for corporate entities, as they are governed under the Companies Act. Only cost accountants are covered under the ICWAI Act. If a company is not following these standards, cost accountants are asked to make a suitable disclosure or qualification while undertaking cost audit. To make companies also follow the cost accounting standards, an expert group constituted by the Ministry of Corporate Affairs (MCA) to review the working of the cost accounting profession in India recommended that cost accounting standards should be part of the existing National Advisory Committee on Accounting Standards (NACAS) or a similar body should be set up. NACAS was set up under the Companies Act and accounting standards prepared by the Institute of Chartered Accountants of India (ICAI) are notified after they are referred to the body. The government has prescribed cost accounting records rules (CARR) in 43 industries. The companies which are covered by CARR are required to maintain the cost data in the manner prescribed under these rules. Cost audit, supported by cost accounting standards, can provide relevant and credible cost and revenue data to regulators to support their decisions. As of now, the institute has come out with six standards only, though there would be 39 cost accounting standards in all. Banerjee said the institute would bring out four more standards soon.