NEW ORDERS FROM COST AUDIT BRANCH
FOR
COST AUDIT / COMPLIANCE REPORT
PRESENTATION
BY
V.C. KOTHARI
(M.COM., LL.B., FICWA, FCS, GDCS )
PRACTISING COST ACCOUNTANT
IMPLICATIONS OF NEW ORDERS FROM COST AUDIT BRANCH
The Government
• Regulatory push to Indian Companies highest level of cost
management and cost competitiveness
• Strengthening the better corporate mechanism
• Simplification of rules, procedures and formats
• Recognition to cost accounting standards
• Reliable data for various government and regulatory bodies
• Easy tax administration
• Better policy decision for subsidies, economic decisions, etc.
• Use of data by SEBI, CBDT, CBEC, CCI, NPPA, ETC for
regulation
IMPLICATIONS OF NEW ORDERS FROM COST AUDIT BRANCH
INDUSTRY
• Simplification of rules, procedures, structure, & formats with
emphasis on cost and efficiency parameters
• Better planning
• Optimisation of use of scarce resources
• Improved competitiveness
• Better corporate governance
• Reduction in cost of data management
• Ready availability of authentic cost data for use in
anti-dumping proceedings in India and abroad
• Transfer pricing assessment
• Competition commission hearings
IMPLICATIONS OF NEW ORDERS FROM COST AUDIT BRANCH
Cost accountants
•Recognition of the profession for conservation for scarce
resources
•Added responsibility for cost management
•Reliance for the first time for professional integrity for
certification of Compliance Report by Cost Accountant in full
time employment of the Company
•More opportunities for other professional services
Society at large
•Competitive prices due to better cost management
•Certified Cost data useful for various tax and other statutory
compliances
•Better creditability with banks and other stake holders of the
Company
•Consumer protection
INDIAN ECONOMY
NEED FOR COST CONSCIOUSNESS
COUNTRY FACING UNIQUE CHALLENGES
• Impact of severe global recession since 2008
• Cost management by USA / European Governments
• High inflation and increasing cost of living
• Need for better public administration
• Farmers’ dis-satisfaction due to volatile prices
• Increasing subsidy bill for the government
-Fuel 38,386; Food 60,600; Fertilizer 54,976; Total Rupees
164,153 Crore – 15% of Govt. Expenditure in 2010-11
• High interest rates for business
• Govt.’s concern for BPL population
NEW DIRECTIONS FOR COST AUDIT IN 2011-12
1.
2.
3.
4.
5.
6.
7.
8.
General Circular No. 15/2011 dated 11-04-2011 (File No. 52/5/CAB-2011 for
Appointment of Cost Auditor
Order No. 52/26/CAB/2010 dated 02-05-2011 for Cost Audit by all companies
covering 8 products
Order No. 52/26/CAB/2010 dated 03-05-2011 for Cost Audit by all companies
covering 6 products
GSR NO. 429 (E) dated 03-06-2011 prescribing Cost Accounting
(Record )Rules, 2011 and specially for ‘Compliance Report’
GSR NO. 430 (E) dated 03-06-2011 prescribing Cost Audit
(Report)Rules, 2011 Cost Audit
Order No. 52/26/CAB/2010 dated 30-06-2011 modifying order dated 03-052011 for Cost Audit by all companies covering 8 products and linking with
Excise Tariff
Master Circular No. 2/2011 dated 11-11-2011 on Cost Records and Cost Audit
General Circular No. 67/2011 dated 30-11-2011 (File No. 52/13/CAB-2011 for
clarifications for coverage of certain sectors for Cost Accounting Records and
Cost Audit
NEW DIRECTIONS FOR COST AUDIT IN 2011-12- Continued
9. General Circular No. 68/2011 dated 30-11-2011 (File No. 52/13/CAB-2011
for clarifications for regarding
applicability and compliance
requirements for Cost Accounting Records and Cost Audit
10. Notification No. GSR 869 (E) dated 07-12-2011 prescribing new Cost
Accounting Records for Telecommunication Industry
11. Notification No. GSR 870 (E) dated 07-12-2011 prescribing new Cost
Accounting Records for Petroleum Industry
12. Notification No. GSR 871 (E) dated 07-12-2011 prescribing new Cost
Accounting Records for Electricity Industry
13. Notification No. GSR 872 (E) dated 07-12-2011 prescribing new Cost
Accounting Records for Sugar Industry
14. Notification No. GSR 873 (E) dated 07-12-2011 prescribing new Cost
Accounting Records for Fertilizer Industry
15. Notification No. GSR 874 (E) dated 07-12-2011 prescribing new Cost
Accounting Records for Pharmaceutical Industry
16. Order No. 52/26/CAB/2010 dated 24-01-2012 for Cost Audit by all
companies covering 9 products and linked with Excise Tariff
Order No. F. No. 52/26/CAB/-2010 DT. 2nd May, 2011 for Cost
Audit by all Companies in 8 Groups of Regulated Industries
(1)
1. PRODUCTS
Bulk Drugs, Formulations, Fertilizers, Sugar, Industrial Alcohol, Electricity
Industry, Petroleum Industry, Telecommunications
2. APPLICABILITY
a. As on the last date of the immediately preceding year:
(i) Net worth exceeds Rs. five crores, OR
(ii) Aggregate value of the turnover from sale or supply of all
products or activities exceeds Rs. twenty crores, OR
b.
The Company’s equity or debt securities are listed or are in the
process of listing on any stock exchange, whether in India or
outside India
Order No. F. No. 52/26/CAB/-2010 DT. 2nd May, 2011 for Cost Audit
by all Companies in 8 Groups of Regulated Industries
(2)
3. APPLICABLE RULES
a. Product / Industry wise Cost Accounting Records Rules for companies coming under
applicability clause
b. Cost Audit compulsory for all companies covered under this Order
4. Auditor
Cost Auditor Either a cost accountant holding valid certificate of practice under the provisions of
Cost and Works Accountants Act, 1959.
OR
A firm of cost accountants registered with ICWAI and whose partners hold valid
certificate of practice under the provisions of Cost and Works Accountants Act,
1959.
Appointment should be as per procedure laid down vide MCA’s General Circular No.
15/2011 [52/5/CAB – 2011] dated 11th April, 2011
Order No. F. No. 52/26/CAB/-2010 DT. 2nd May, 2011 for Cost Audit
by all Companies in 8 Groups of Regulated Industries
(3)
5. FORM FOR REPORTING
a. New From as per The Companies (Cost Audit Report) Rules, 2011 for Cost Audit
Report submitted on or after 1st April, 2012 irrespective of the financial year to
which it relates.
b. Existing Form as per The Companies (Cost Audit Report) Rules, 2001 for Cost
Audit Report submitted on or upto 31st March, 2012 .
6. PERIOD OF REPORTING
Each of the financial year commencing on or after the 1st April, 2011
Order No. F. No. 52/26/CAB/-2010 DT. 3RD May, 2011 Modified by Order No.
F. No. 52/26/CAB/-2010 DT. 30th June, 2011 for Cost Audit by all Companies
in 8 Groups of Industries
(1)
(1) PRODUCTS COVERED – Including Intermediate products and articles or
allied products
S.NO. INDUSTRY
RELEVANT CHPTR HEADING OF CENTRAL
EXCISE TARIFF ACT, 1985 (CETA)
Chapter 25, 38 and 68
Chapter 40
Chapter 72 and 73
Chapter 47 and 48
Chapter 38
Chapter 70
Chapter 32
Chapter 76
1.
Cement
2.
Tyres and Tubes
3.
Steel
4.
Paper
5.
Insecticides*
6.
Glass
7.
Paints & Varnishes
8.
Aluminum
NOTES
•
Intermediate products and articles or allied products of above industries if included
under any other Chapter of the CETA not mentioned above shall also be covered .
•
Includes all classes of Insecticides as defined under The Insecticides Act, 1968
Order No. F. No. 52/26/CAB/-2010 DT. 3RD May, 2011 Modified by Order
No. F. No. 52/26/CAB/-2010 DT. 30th June, 2011 for Cost Audit by all
Companies in 8 Groups of Industries
(2)
2. APPLICABILITY
a. As on the last date of the immediately preceding year
aggregate value of the turnover from sale or supply of all
products or activities exceeds Rs. hundred crores, OR
b. The Company’s equity or debt securities are listed or are
in the process of listing on any stock exchange, whether in
India or outside India
Order No. F. No. 52/26/CAB/-2010 DT. 3RD May, 2011 Modified
by Order No. F. No. 52/26/CAB/-2010 DT. 30th June, 2011 for
Cost Audit by all Companies in 8 Groups of Industries
(3)
3. APPLICABLE RULES
a. Cost Accounting Records Rules as Notified under Notification of 3rd June, 2011
b. Product / Industry wise Cost Accounting Records Rules not applicable but Cost
Accounting Standards and Generally Accepted Cost Accounting Principles
(GACAP) issued by ICWAI have to be followed
c. Cost Audit compulsory for all companies covered under this Order
4. Auditor
Cost Auditor Either a cost accountant holding valid certificate of practice under the provisions
of Cost and Works Accountants Act, 1959.
OR
A firm of cost accountants registered with ICWAI and whose partners hold valid
certificate of practice under the provisions of Cost and Works Accountants Act,
1959.
Appointment should be as per procedure laid down vide MCA’s General Circular
No. 15/2011 [52/5/CAB – 2011] dated 11th April, 2011
Order No. F. No. 52/26/CAB/-2010 DT. 3RD May, 2011 Modified by
Order No. F. No. 52/26/CAB/-2010 DT. 30th June, 2011 for Cost Audit
by all Companies in 8 Groups of Industries
(4)
5. FORM FOR REPORTING
a. New From as per The Companies (Cost Audit Report) Rules, 2011 for Cost Audit
Report submitted on or after 1st April, 2012 irrespective of the financial year to
which it relates.
b. Existing Form as per The Companies (Cost Audit Report) Rules, 2001 for Cost
Audit Report submitted on or upto 31st March, 2012 .
6. PERIOD OF REPORTING
Each of the financial year commencing on or after the 1st April, 2011
Order No. 52/26/CAB/2010 dated 24-01-2012 for Cost Audit by
all companies covering 9 products and linked with Excise Tariff
(1)
(1) PRODUCTS COVERED – Including Intermediate products and articles or
allied products
S.NO. INDUSTRY
RELEVANT CHAPTER OF EXCISE TARIFF
1. Jute, cotton, silk, woollen
or blended fibers / textiles Chapter 50 to 63
2. Edible oil seeds and Oils
(including vanaspati)
Chapters 12 and 15
3. Packaged food products
Chapters 2 to 25 (except Chapters 5, 6,
14, 23 and 24)
4. Organic and Inorganic
Chemicals
Chapters 28, 29, 32, 38 and 39
5. Coal and lignite
Chapter 27
6. Mining & Metallurgy of
Ferrous and non-ferrous
Chapters 26 and 74 to 83 (except
Metals
Chapters 76 and 77)
7. Tractors & other motor
vehicles (including auto
Chapters 84,85 and 87
Components)
Order No. 52/26/CAB/2010 dated 24-01-2012 for Cost Audit by
all companies covering 9 products and linked with Excise Tariff
(2)
(1) PRODUCTS COVERED – Including Intermediate products and articles or
allied products
S.NO. INDUSTRY
RELEVANT CHAPTER OF EXCISE TARIFF
8. Plantation Products
Chapters 8,9, 21 and 40
9. Engineering Machinery
(including electrical and
Chapters 84 and 85
electronic products)
NOTES
(a) Intermediate or final products and articles or allied products of above
industries if included under any other Chapter not mentioned above
shall also be covered
(b) Items falling under above Chapter references exclude products already
covered vide Cost Audit Orders dated 02-05-2011 and 30-06-2011
(c) Products falling under above Chapter references are to be considered
against the respective industry as applicable
Order No. 52/26/CAB/2010 dated 24-01-2012 for Cost Audit by
all companies covering 9 products and linked with Excise Tariff
(3)
IMPORTATANT NOTES
1. Due to issue of industry specific orders, all company specific
cost audit orders issued to individual companies prior to 3103-2011 stand withdrawn wef financial year commencing on
or after 01-04-2012
2. All companies who were issued cost audit orders to
individual company prior to 31-03-2011 but covered by order
dated 02-05-20110 or 30-06-2011 shall now comply with the
industry specific orders.
3. Companies covered under company specific orders issued
prior to 31-03-2011 shall comply such orders upto 31-032012 before their withdrawal wef financial year commencing
on or after 01-04-2012
PENALTIES UNDER Orders No. F. No. 52/26/CAB/-2010 DT. 2ND May, 2011, DT. 3RD
May, 2011, 30th June, 2011 and 24th January, 2012 for Cost Audit by all Companies
in 15 Groups of Industries
SECTIONS OF
THE ACT
209(5)/209(6)
AND 209(7)
OFFENCE
PENALTY
Failure to keep proper books of For each offence –
accounts including
cost account imprisonment upto six
records
months or fine upto
Persons Responsible – Managing Rs. 10,000/- or both.
Director /Manager / Every Director, if
MD or Manager is not there and
“Officer who is in default”
233B (11)
Failure to comply with Cost Audit
provisions
Fine upto Rs. 5,000/Imprisonment upto three
years or
Company
Fine upto Rs. 5,000/-
“Officer who is in default”
Imprisonment upto three
years or fine upto
Rs. 50,000/- or both.
COST ACCOUNTING STANDARDS (CAS) ISSUED BY ICWAI AND
PRESCRIBED FOR MAINTANING COST ACCOUNTING RECORDS
CAS NO. TITLE
CAS - 1
CAS - 2
CAS – 3
CAS - 4
CAS - 5
Classification of Cost
Capacity Determination
Overheads
Cost of production for captive consumption
Determination of average (equalized) cost of
transportation
CAS - 6 Material Cost
CAS - 7 Employee Cost
CAS - 8 Cost of utilities
CAS - 9 Packing material cost
CAS - 10 Direct Expenses
CAS - 11 Administrative Overheads
CAS - 12 Repairs and maintenance cost
CAS - 13 Cost of service cost centre
RELEASE DATE
08-04-2002
03-01-2003
03-01-2003
03-01-2003
21-07-2005
12-12-2008
12-09-2009
12-09-2009
14-12-2009
14-12-2009
27-03-2010
27-03-2010
25-02-2011
Master Circular No. 2/2011 File No. 52/14/CAB-2011
dated 11-11-2011 concerning Cost Accounting Records
and Cost Audit
(1)
(a) The Cost Auditor cannot be internal auditor of a company for the period for
which he is conducting the Cost Audit in the Company
(b) The specified number of companies for section 233B(2) read with section 224
1B) is to be computed with reference to the number of companies
wherein he
is appointed as the cost auditor will include (i) for which he has given consent ,
and (ii) for which cost audit reports have not been submitted (overdue)
(c) A cost auditor is deemed to have concluded his appointment on rendering
report to the MCA.
(d) The Cost Auditor should ensure that full and complete details of cost accounts
are furnished in their cost audit reports.
(e) In case of appointment of a firm of Cost Accountants, the cost audit report can
be signed by any one of the partners responsible for conducting the cost audit in
his own hand with his membership number for and on behalf of the firm.
-continued
Master Circular No. 2/2011 File No. 52/14/CAB-2011 dated 1111-2011 concerning Cost Accounting Records and Cost Audit
(2)
(f) If a cost audit is covered for the first time, the cost auditor
shall mention previous year figures on the basis of information
furnished by the management for which he should obtain a
certificate from them.
(g)U/S 292A (6) The term “auditors” includes cost auditor. The
audit committee should ensure compliance of internal control
systems and also suggestions made in the Cost Audit Report.
The presence of Cost Auditor at meetings
of the Audit
Committee or Board does not make him a member or give him
right to vote.
General Circular No. 67/2011 dated 30-11-2011 (File No.
52/13/CAB-2011) for clarifications for coverage of certain
sectors for Cost Accounting Records and Cost Audit
1. It gives clarification about the products / businesses
to which the Cost Accounting Record Rules 2011 are
not applicable.
2. Captive power generation and own manufactured
products for self consumption in products which are
subject to cost audit.
3. It gives examples of intermediate products and allied
products for determination under Excise Tariff.
General Circular No. 68/2011 dated 30-11-2011 (File No.
52/13/CAB-2011 for clarifications for regarding applicability
and compliance requirements for Cost Accounting Records and
Cost Audit
1.
2.
3.
4.
5.
6.
Companies covered under Cost Accounting Records Rules, 2011 shall file
only a simple compliance report and no other details of cost records.
Records shall be kept in good order for the eight years starting with first
year of application of Record Rules and Audit Report Rules.
Turnover shall exclude taxes and duties.
If only one product is subject to cost audit and there are more than one
cost auditor, only a consolidated cost audit report should be prepared and
signed by all the cost auditors.
If more than one product are under cost audit for which same or separate
cost auditors have been appointed, either separate report for each product
or only one consolidated report containing details of each product group
under audit separately can be submitted.
Cost Auditors shall not provide any other services relating to (i) design and
implementation of cost accounting system, or (ii) the maintenance of cost
accounting records, or (iii) act as internal auditor.
General Circular No. 15/2011 dated 11th April, 2011 (File No.
52/5/CAB-2011) for Appointment of Cost Auditor by Companies.
(1)
EFFECTIVE FROM
Financial year commencing on or after 1st April, 2011
ELLIGIBILITY
1. A cost accountant in whole time practice
2. Holding a valid certificate of practice, and
3. Includes a firm of Cost Accountants registered with the ICWAI
PROCEDURE FOR APPOINTMENT
1. Company to enquire about availability of the Cost Auditor
2. The Cost Auditor to submit consent declaring that
a. He holds a valid certificate of practice
b. He is not disqualified under sections 233 B (5), section 224 and subsection (3) or sub – section (4) of section 226 of the Act
c. He is independent and at arms length
General Circular No. 15/2011 dated 11th April, 2011 (File No.
52/5/CAB-2011) for Appointment of Cost Auditor by Companies.
(2)
PROCEDURE FOR APPOINTMENT – Continued
3. The Audit Committee or the Board to ensure that the Cost Auditor confirms to his
declarations and approves appointment subject to Government’s approval.
4. The Company files Form 23C within 90 days of commencement of each financial
year with (i) copy of board resolution and (ii) certificate from the proposed cost
auditor
5. Appointment deemed to be approved by the Central Government unless
contrary is heard within 30 days from the date of filing Form 23C.
6. Company to resubmit Form 23C, if any clarification is asked for.
7. Appointment deemed to be approved by the Central Government from the date
of filing fresh Form 23C with clarifications.
8. The Company to issue appointment letter to the Cost Auditor as approved by
the Board.
9. The Cost Auditor to file Form 23D within 30 days of receiving appointment
letter.
10. The Company to disclose full particulars of Cost Auditor and date of filing of the
cost audit report in its annul report for each financial year.
General Circular No. 15/2011 dated 11th April, 2011 (File No.
52/5/CAB-2011) for Appointment of Cost Auditor by Companies.
(3)
PENALTIES
1.
•
•
Sections - 209(5)/209(6) AND 209(7) - Failure to keep proper books of
accounts including cost account records
Persons Responsible – Managing Director /Manager / Every Director, if MD or
Manager is not there and “Officer who is in default”
For each offence – imprisonment upto six months or fine upto Rs. 10,000/- or
both
2. Section - 233B (11)
• Failure to comply with Cost Audit provisions
3.
Company - Fine upto Rs. 5,000/“Officer who is in default” - Imprisonment upto three years or fine upto Rs.
50,000/- or both.
COST AUDITOR
Fine upto Rs. 5,000/-
ROLE OF ICWAI
• Already issued frequently asked questions to be upgraded from
time to time
• Issued 13 Cost Accounting Standards and will issue 26 more
Cost Accounting Standards
• Already issued Draft of Generally Accepting Cost Accounting
Principles as envisaged in new Notifications for suggestions by
all stakeholders
• Will set up a technical guidance cell to help for compliance of
the statutes by business and profession
• Will issue industry specific guidance notes for maintaining cost
records, compliance with Cost Accounting Standards, product
groups, etc.
Draft of Consent Letter by PCA to the Company.
----------------------------- COST ACCOUNTANTS ---------------------------------------------Ref. No. ------------------------------- Date---------------------------------The Chairman,
Audit Committee / Board of Directors,
-------------------------------------- Limited,
----------------------------------------------------Dear Sir,
Subject: COST AUDIT OF ---------------------(PRODCUT) FOR THE YEAR ENDING 31ST MARCH, 201--I / we thank you for your letter No. …………………….. Dated ……………….. (or refer to the discussion with your Chief Finance Officer Mr.
/ Ms. ……………..) for our availability for appointment as Cost Auditor for Cost Audit of ………………………..(Product) for the year ending
on 31st March, 201…. In your esteemed company.
I / we have pleasure to inform you that I / we am/ are:
1. available for appointment as cost auditor required by you;
2. free from any disqualifications as specified under Section 233B (5) read with Section 224 and sub-section (3) or sub-section (4) of
Section 226 of the Companies Act;
3. having audits within the limits prescribed under Section 224 (1B) read with sub-section (2) of Section 233B of the Companies Act,
1956 including your Company, if appointed;
4. holding valid certificate of practice issued by the Institute of Cost and Works Accountants of India;
5. in whole time practice having membership No …………………… / firm Registration No. ………………….;
6. having PAN ------7. not having any interest in your company which will disqualify me / us from the proposed appointment as auditor;
Thanking you,
Yours faithfully
FOR ………………………
COST ACCOUNTANT/S
PARTNER
----------------------------- COST ACCOUNTANTS ---------------------------------------------Ref. No. ------------------------------- Date---------------------------------The Chairman,
Audit Committee / Board of Directors,
-------------------------------------- Limited,
----------------------------------------------------Dear Sir,
Subject: COST AUDIT OF ---------------------(PRODCUT) FOR THE YEAR ENDING 31ST MARCH, 201--I / we thank you for your letter No. …………………….. Dated ……………….. (or refer to the discussion with your Chief Finance
Officer Mr. / Ms. ……………..) confirming our appointment as Cost Auditor for Cost Audit of ………………………..(Product) for the
year ending on 31st March, 201…. In your esteemed company and enclosing copy of resolution of the Board fo Directors and
Form 23 C filed with the Ministry of Corporate Affairs.
We would request you to kindly invite us to meetings of your Audit Committee and in the meanwhile give a suitable
appointment for a meeting to finalise procedure for Cost Audit.
Kindly note that as per clause K of the General Circular No. 15/2011 [52/5/CAB-2011) dated 11th
April, 2011 issued by the Ministry of Corporate Affairs, Cost Audit Branch the company has to disclose full particulars of the Cost
Auditor along with the due date and actual date of submission of the Cost Audit Report by the Cost Auditor with the Ministry in
the Directors Report to the Shareholders for each relevant financial year.
Thanking you,
Yours faithfully
FOR ………………………
COST ACCOUNTANT/S
PARTNER
COST ACCOUNTING POLICIES
1. Analysis of Standards followed:
Cost Accounting standards;
International Accounting Standards;
Indian Accounting Standards;
IFRS;
Generally Accepted Cost Accounting Principles;
2. Alternatives followed where multiple options are available:
a. Subsidy – capital / revenue – transport, duty and taxes, incentives, etc
b. Valuation of works in process / in progress – engineering, construction, process industry
c. Foreign exchange fluctuations impacting shipments / inventory
d. Amortization of R & D expenses
e. amortization of Intangible assets like soft ware, copy rights, customers after sales service
f. sales returns , expiry of shelf life of products ,bad debts
g. Transfer pricing norms e.g.. CAS 4,
h. Depreciation – 100% , SLM, WDV, Low value assets / materials
i. Retirement benefits – gratuity / leave entitlements
j. impairment of assets; insurance claims
k. financial costs – interest, bank charges, capital issue expenses, etc.
l. Carbon credits
3. Allocation of overheads / estimation – actual results; technical evaluation; ratio of prime cost
4. Overseas operations – costs, revenues, local laws, etc.
THANKS