Draft cost audit rules will hit revenue collection, says professional body

Jan 18,2014

The Cost Accountants Institute on Saturday slammed the Corporate Affairs Ministry for proposing to abolish the statutory maintenance of cost records and suggesting to do away with — in most cases — the requirement for cost audit.

Such a far-reaching, drastic step without going through a consultation process will hurt the Centre’s revenue collection and not be in the interest of the Indian economy, said Rakesh Bhalla, Chairman of the Northern India regional council of the Institute of Cost Accountants of India (ICAI), here on Saturday.

The stance is at variance with a large section of corporate stakeholders who contend that cost audit is a relic of the controlled economy era and cannot be mandated in an open economy situation — especially when technology has displaced many manufacturing processes.

Few sectors

The Ministry has, through draft rules issued in November, sought to not only abolish maintenance of cost records by companies, but also do away with cost audits for most companies except a handful .

Currently, cost audits are mandatory for the entire manufacturing sector — the criteria for coverage being turnover above Rs 100 crore or a listed entity. All sectoral regulated entities above Rs 20-crore turnover are also covered under mandatory cost audit.

But the draft rules have removed the aspect of listed companies, thereby raising doubts on the validity of the SEBI requirement of mandatory cost audits in all listed manufacturing companies.

In the draft rules, major industries such as automobiles, paper, paint, and glass have been left out of the scope of cost audit.

It has been confined only to a few specified industries, such as those in the strategic defence sector, with the result that only a handful of companies will come under cost audit, said Chandra Wadhwa, former president of the cost accountants institute.

“Without applying our mind, we are going to abolish maintenance of cost records and doing away with mandatory cost audits”, he said, adding that cost audit reports could be a useful tool for the Board of Directors of a company.

Wadhwa said there was a need to bring back the recommendations of the Ministry-appointed expert group in 2008.

Vijender Sharma, a practicing cost accountant, said the intention and mandate of the legislators has not been followed by the Ministry while framing the rules.

While the new company law seeks to bring both manufacturing and services under the cost audit ambit, the draft rules seek to narrow its scope to a few select industries.