COST AUDIT COST AUDIT Swajan K Sen, Mech Engg,, F.I.C.W.A, LL.B, LL.M (I), Ph 9830563280 A comprehensive presentation

COST AUDITCOST AUDIT

Swajan K Sen , Mech Engg,, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

A comprehensive presentation

OVERVIEWOVERVIEW India is the first country in South Asia (and perhaps in the

world) to make cost audit mandatory.

The Institute of Cost and Works Accountants of India (ICWAI) supervises it and is the custodian.

Vide The Gazette of India dated June 3 2011 it becomes mandatory w.e.f 1st April 2011

It is to be monitored by the Govt of India through it’s economic branch the Ministry of Corporate Affairs.

It attracts the following sections of Companies Act◦ Sec 233B ◦ Sec 209(1) (d) ◦ Sec 600(3)(b) and Rule 2 of Co.Act (Cost Accounting Records) Rules, 2011

Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

WHAT IT IS ?WHAT IT IS ?“It is the detailed maintenance & checking of the

cost in relation to any activity of business - It’s origin It’s recording It’s maintenance It’s justification AND to arrive at Total Cost Sales Price Profit

As a whole it is a study of the system, technique and to verify their correctness and to determine actual cost of any product or services.

Objectives of cost audit include the determination and control of cost together with providing data to arrive at decisions on various matters, such as operational efficiency.

Data generation and capturing shall be industry specific.


WHY ?WHY ? Every one will agree that we are at the verge of

exhausting our natural resources. Technocrats do conserve them by process refinements and scientists by innovations. However, the actual effect of such efforts were not being recorded systematically so as to increase the profit of an enterprise by best industrial engineering processes and to conserve the resources especially as to when we know in few years we might not have coal and oil.

Hence it is a need to dig down to cost and optimize it, rather than chasing revenue…it is a time for the survival of the fittest.


OBJECTIVESOBJECTIVES From the perspective of management: Cost audit detects correct cost that provides opportunity to quote better and

increases competitiveness in the market and enhances efficiency.

. From the perspective of shareholders: Cost audit ensures that the valuation of closing stock and work-in-progress are

correct, hence helps in the computation of more accurate profit figures.

From the perspective of the government: Increased profit means increased government exchequer Conservation of resources by way of reduction in wastage Higher productivity and higher GDP & PCI

From the perspective of customers: Customers may obtain more benefit if the cost is reduced due to effective control.


The said Rules are applicable to all companies engaged in production, processing, manufacturing and mining activities as defined under Rules 2(j), 2(k), 2(l) or 2(o) respectively and where:

a) the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or

b) the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or

c) 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.

Any company meeting the above criteria would be required to maintain cost accounting records and file a Compliance Report in the prescribed format from financial year commencing on and from 1st April 2011.


APPLICABILITYAPPLICABILITY

UNDERSTANDINGUNDERSTANDING APPLICABILITY APPLICABILITY Cost Audit applies to –

Specific activities undertaken by an organization.

Please noteIT APPLIES TO ACTIVITIES and NOT TYPES OF

COMPANIES Unlike 44AB of Income tax Act applies to just turnover

Hence, in a multi activity company, one activity may be attracted and may not.

What Activities then ?


UNDERSTANDINGUNDERSTANDING APPLICABILITY APPLICABILITY How is production & manufacturing defined ..

(j) “Manufacturing Activity” includes any act, process or method employed in relation to –

i. Transformation of raw materials, components, sub-assemblies, or

parts into semi-finished or finished products; or

ii. Making, altering, repairing, fabricating, generating, composing,

ornamenting, furnishing, finishing, packing, re-packing, oiling,

washing, cleaning, breaking-up, demolishing, or otherwise treating

or adapting any product with a view to its use, sale, transport,

delivery or disposal; or

iii. constructing, reconstructing, reconditioning, servicing, refitting,

repairing, finishing or breaking up of any products.


UNDERSTANDINGUNDERSTANDING APPLICABILITY APPLICABILITY How is processing defined .. (l) “Processing Activity” includes any act, process, procedure, function,

operation, technique, treatment or method employed in relation to

i. altering the condition or properties of inputs for their

use, consumption, sale, transport, delivery or disposal;

or

ii. accessioning, arranging, describing, or storing products;

or

iii. printing, publishing, finishing, perforation, trimming,

cutting, or packaging; or


Duty of Company under Duty of Company under Companies (Cost Accounting Records) Rules Companies (Cost Accounting Records) Rules

20112011

Company to maintain Cost Accounting Records as per Cost Accounting Standards and Generally

Accepted Cost Accounting Principles


Audit complianceAudit compliance


Statutory Audits in INDIAStatutory Audits in INDIA There used to be two types of Statutory Audits now that

becomes three … 1 . Govt Audits – (Applicable to Govt or Govt monitored companies) CAG Audit, CVC Audit, RBI Audit, Special Audits, Defense Audit etc – Generally not applicable

to private companies unless there is a reason by Govt of India. Audit is done by - C&AG, RBI, and by special enforcement personnel

2. Financial Audit u/s 224 of Companies Act 1956 and Tax Audit u/s Sec 44 AB of I.T.Act

Audit of the accounts of certain assesses.

Tax audit is done by - Chartered Accountants holding COP

3. Cost Audit Recently introduced by Govt of India vide section 233B of Companies Act 1956 in the year 2011. Mandatory Cost Accounting Records rule to follow

Mandatory Cost Accounting Reports Rule to follow Cost Audit is done by - Cost Accountants holding COP


COST AUDIT DETAIL- 1COST AUDIT DETAIL- 1 The Company has to follow and maintain Cost Accounting Standards CAS as issued by Cost Accounting Standards Board – CAS1- Classification of Cost CAS2-Capacity Determination CAS3-Overheads CAS4-Cost of Production for Captive Consumption CAS5-Average (equalized) Cost of Transportation CAS6-Material Cost CAS7-Employee Cost CAS8-Cost of Utilities CAS9-Packing Material Cost CAS10-Direct Expenses CAS11-Administrative Overheads CAS12 -Repairs And Maintenance Cost

CAS13 -Cost of Service Cost Centre


COST AUDIT DETAIL- 2COST AUDIT DETAIL- 2

Company has to follow GACAP

(Generally Accepted Cost Accounting

Principles)

Swajan K Sen , Mech Engg, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

COST AUDIT DETAIL- 3COST AUDIT DETAIL- 3Salient features

Appointment of Cost Auditors Cost Auditor to submit his consent letter to BOD for his appointment u/s 233B(2) of Co.Act 1956

as required u/s 224(1-B).

Company has to pass a resolution.

Company shall e-file Form 23C within 90 days from commencement of each financial year certified copy of Board resolution Consent letter from auditor Challan for fees

Auditor to e-file Form 23C Containing- Consent letter u/s 224(1-B) , Tax Pan , Membership number , Email id of the auditor, Scope of Audit

Company has to furnish the form 23C & SRN to Auditor

Appointment deemed to be approved by Central Govt.

Company has to issue appointment letter to Auditor

Failure to comply shall attract penalty u/s 209(5), 209(6), 209(7), 233B(11), 642(5) and 642(7) of

Companies Act 1956.


COST AUDIT DETAIL- 4COST AUDIT DETAIL- 4REPORT FORMS

Form –I Cost Audit report and other documents to C.Govt

Form –II Cost Auditors report with all Annexures **

Form -III Form of performance appraisal report

** Annexures to be signed by at least 2 directors of the company.


COST AUDIT DETAIL- 5COST AUDIT DETAIL- 5ANNEXURE TO THE COST AUDIT REPORT

[See rule 2 and rule 6]

1. GENERAL INFORMATION: 1. CIN or GLN of the company:

2. Name of the company:

3. Registered office address:

4. Corporate office address:

5. E-mail address of the company:

6. Company's financial year to which the Cost Audit Report relates:

7. Name, address, membership number and e-mail of the Cost Auditor(s):

8. SRN Number and date of Filing of Form 23C with the Central Government:

9. Date of Board of Directors' meeting wherein the Annexure to the cost audit report were approved

10. No. of Audit Committee meetings held by the company, and attended by the Cost

Auditor during the


COST AUDIT DETAIL- 6COST AUDIT DETAIL- 62. COST ACCOUNTING POLICY: (1) Describe the cost accounting policy adopted by the Company

(2) Cost accounting standards and its adequacy

(3) Determine correctly the cost of production/operation, cost of sales, sales realization and margin of the

product/activity groups separately for each product/activity group.

The policy should cover, inter alia, the following areas: a) Identification of cost centers/cost objects and cost drivers.b) Accounting for material cost including packing materials, stores and spares etc., employee cost, utilities and other relevant cost components.c) Accounting, allocation and absorption of overheadsd) Accounting for Depreciation/Amortizatione) Accounting for by-products/joint-products, scarps, wastage etc.f) Basis for Inventory Valuationg) Methodology for valuation of Inter-Unit/Inter Company and Related Party transactions.h) Treatment of abnormal and non-recurring costs including classification of other non-cost items.i) IFRS – Not applicable

Observations of the Cost Auditor regarding adequacy or otherwise of the Budgetary Control System.


COST AUDIT DETAIL- 7COST AUDIT DETAIL- 7Sno. Name of each Product Group

Names of Products/ Activities included in the Product Group

Net Sales (net of

taxes, duties, etc.)Rs. Lakh

Covered

under Cost

Audit (Y / N)

A Manufactured Product Groups 1,2,3,….

Sub-Total (A) B Services Groups

1,2,3,….

Sub-Total (B)

C Trading Activities (Product Group-wise)

1,2,3,….

Sub-Total (C)

D Other Incomes

1,2,3,….

Sub-Total (D)

E Total Income as per Audited Annual Report (A+B+C+D)

NOTES: (1) For manufactured product groups, use the nomenclature as used in the Central Excise Act and Rules, as applicable. (2) For service groups, use the nomenclature as used in the Finance Act / Central Service Tax Rules, as applicable.

























Appointment of Cost Auditor

Ensure system so that required data can be

captured

Auditor to be ensured that data shall be

furnished

Auditor to complete the audit and directors to authenticate reports

Auditor to submit report to Central Govt

Statutory Auditor to be furnished copy to

reconcile the financial audit



Gentlemen,

Did you like it ?

How do you rate it in terms of 10 marks max .

You are important, hence your opinion is too important.

Swajan Kr Sen Mech Engg, F.I.C.W.A, LL.B, LL.M (I) Ph 9830563280

This presentation site is only intended to convey information. The author has taken all usual and reasonable precautions to determine that the information contained herein has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles. However, the author does not make any warranty as to the accuracy or completeness of information, analysis or views contained in this presentation. The author accepts no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon the presentation. Opinions expressed are personal in nature and subject to change without not ice.

Texts presented and provided here are to be used only for Uniseven Engineering & Infrastructure Pvt Ltd and should not be used for or by any other person including any organization for their own or for the use of any related or non related party.

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THANK YOU

Swajan Kr Sen Mech Engg, F.I.C.W.A, LL.B, LL.M (I) Ph 9830563280

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COST AUDIT COST AUDIT Swajan K Sen, Mech Engg,, F.I.C.W.A, LL.B, LL.M (I), Ph 9830563280 A comprehensive presentation