Monday, August 12, 2013

[aaykarbhavan] COST AUDIT




MUMBAI: Even after a November 2012 government order that made it mandatory for all companies with a turnover exceeding Rs 100 crore to hire a cost auditor, there is resistance from certain quarters. Unlike in the case of a financial auditor, whose appointment is ratified by shareholders , the appointment of a cost auditor has to be cleared by the government. 

The Institute of Cost Accountants of India (ICAI) noticed something was amiss when the website of the ministry of corporate affairs (MCA) did not accept appointments of cost auditor. "On November 6, 2012, the government came out with an order superseding all earlier orders regarding cost audits. However, the ministry's e-filing mechanism has never accepted cost auditor's appointment under it," said Ashish Thatte, chairman, western india regional council, ICAI

Since its inception in 1965, the need and necessity of cost audits has been time and again emphasised. The mechanism of cost audit establishes the link between all input factors such as raw materials, labour, power, etc., and the product price to find out the gross margins . Thus, the data is crucial in cases where the government wants to curb profiteering. 

A case in point could be the National Pharmaceutical Pricing Authority fixing the price of drugs. Similarly, in the much-talked-about Fiat India excise duty case, it was the cost audit, that enabled the excise department to conclude that goods were sold below cost. However, the ministry, faced with e-presentations from corporate houses, may be taking a relook into the matter. 

According to Mohan Joseph, additional secretary , ministry of corporate affairs, "The ministry has received several representations from industry associations requesting a review of the notifications issued by the cost audit branch in November , 2012. These notifications are currently being reviewed by the ministry." 

But the Institute of Cost Accountants of India — a body established by law of Parliament — is clueless about this. "The reason for the inability to appoint cost auditors has not been communicated by any concerned authority till now," confirmed ICAI's Thatte. The question that crops up is whether corporate houses are resisting a compulsory cost audit to hide some of their inadequacies. 

Gathering cost data of all players in an industry, year after year, can help in benchmarking, which will highlight outliers. "In steel billets or ingots manufacturing it takes around 1,000 units of power to process one tonne. However, if some company is consuming substantially more or less power , it will be a clear case to probe for possible irregularities ," said Dhananjay Joshi, a practicing cost accountant and a former president of the institute. 

A company booking false invoices for purchase of raw materials, and thereby availing extra CENVAT credit and simultaneously also lowering taxable profits, would be exposed through cost audit because its process loss would overshoot the average. 

Helpful for Govt 

The cost audit mechanism helps various authorities and departments in the government access essential information in preventing profiteering or tax evasion. The Fact Finding Committee set up in 1997 under Justice Rajindar Sachar had observed that mandatory cost audit is necessary to serve social objective and consumer protection. Justice Sachar also warned that unless cost audit is done, the government would not be in a position to control high prices of pharma and several essential items. 

Similarly, SK Shingal, the then chairman of the Central Board of Excise and Customs, had said in 2008 that cost audit reports provide the perfect basis for cross verification by central excise officers. "But since this report is not available for many units manufacturing excisable products, it puts the department at a great disadvantage," he had observed. 



__._,_.___


receive alert on mobile, subscribe to SMS Channel named "aaykarbhavan"
[COST FREE]
SEND "on aaykarbhavan" TO 9870807070 FROM YOUR MOBILE.

To receive the mails from this group send message to aaykarbhavan-subscribe@yahoogroups.com




Your email settings: Individual Email|Traditional
Change settings via the Web (Yahoo! ID required)
Change settings via email: Switch delivery to Daily Digest | Switch to Fully Featured
Visit Your Group | Yahoo! Groups Terms of Use | Unsubscribe

__,_._,___

No comments:

Post a Comment