Mandatory Cost Audit in Service sector

Last updated: 25 August 2007

New Delhi, Aug 24 Companies in the services sector and all listed manufacturing companies may soon have to hire cost accountants under a new formula being worked out by the government to beef up the role of corporate cost audits. According to sources in the ministry of corporate affairs, an internal committee has been formed to look into reviewing the list of industries covered under mandatory cost audit by identifying new threshold levels. The new determinants could be based on turnover, capital base, ownership, level of public holding or even debt exposure in a company or industry, sources said. A cost audit is the process of ascertaining whether the production, marketing and sales processes, as well as other aspects of a business, are managed in the most cost-effective manner. This is essentially an internal audit and is carried out as a tool to optimise management efficiency. A total of 44 industries are currently covered under the mandatory cost audit order. The list includes cement, cycles, tyres & tubes, bulk drugs, nylons, textiles, milk food, steel plants, fertilisers, the petroleum industry and telecommunications. "It is an exercise to examine afresh the whole issue and there will be an overall review of policy," a source said. The reasoning behind the review and possible redrawing or expansion of the list is that India needs to have cost audit data on various industries in the wake of heightened economic activity and also at a time when it is entering into free-trade agreements (FTAs). "The triggers for review include the increased focus on FTAs, to help CCI check predatory pricing and anti-competitive practices, and to verify proper segment reporting," the source added. Institute of Cost and Works Accountants of India president Chander Wadhwa endorses the ministry's proposed move. However, others oppose expanding the list, arguing it would only regulate the corporate sector further and increase the cost of compliance. Note: It is wrong to say that cost audit is an internal phenomenon in the nature of internal audit its focus is all encompassing and reviews of the bottomlines and addresses the issues related to taxation and corporate governance from user perspective for sustenance and growth.It is a definitive methodology for assessment of resource consumption and efficiency benefits in pricing decision from user perspective plans a decision support for growth and sustenance and helps the government in inclusive growth objectives by augmenting revenue through taxes and optimum usage of capital. Intenral audit have a focus on internal control and risk assessment and supplements the work of a cost auditor by identifying the flow and risk involved in maintaining a particular flow or allowing deviation discretion.Cost accounting and audit scrutiny of cost records enable identify the impact of the risk carried by the undertaking in a particular flow it reflects the signal of shaky wicket the business is travelling through suboptimisation.Internal audit scheme is essential and in addition to audit scrutiny of financial and cost records and cost accouting record rules specifically provides on the requirement of cost auditors comments on the existing internal audit system of cost records and suggestion for improvement.

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Mandatory Cost Audit in Service sector

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