Friday, July 4, 2014

Institute of Cost Accountants asks for expansion of ambit of cost audit; expresses concern over new cost audit rules

Institute of Cost Accountant of India (‘The Institute’) has expressed its concerns over the Companies (Cost Records and Audit) Rules, 2014 which were notified on June 30, 2014. The Institute stated that provisions for maintaining Cost Accounting Records and Cost Audit to fulfil the objectives of improving Public Distribution System, Health Care System and transforming Indian industry into a globally competitive manufacturing hub and to encourage Small Scale Industries have not been addressed. The Institute urged for necessary intervention by the Ministry of Finance in this matter and issue directive to modify the Rules in line with the suggestions given by the Institute.The key suggestions given by the Institutehave been listed as under:

1)The new Rules and the product definitions will lead to major increase in the cost to the Government as the entire “Product Group”, “Costing Taxonomy” and “XBRL” filing process (herein after referred to as ‘Taxonomies’) have to be revisited for this purpose;

2)The existing Taxonomies have stood the test of filing for two years and they have become robust after many course corrections over a period of four years;

3)The coverage of industries does not have a clear logic and it will lead to confusion as to what products are covered and what are not covered. The Product Group as per Excise Classification (Based on international HSN Code) was a clear definition of the products covered. New classification will again have to be developed involving another year of work with additional cost;

4)The Cost Audit Report filing (CRA-4) does not have any provision for Cost Auditor’s signature, which is a very important part of audit standards;

5)The maintenance of cost records should comply with the requirement of Cost Accounting standards and Generally Accepted Cost Accounting Principles as defined in the Companies (Cost Accounting Records) Rules, 2011 and which are omitted in the new Companies (Cost Records and Audit) Rules, 2014.

6)The product, production, production of goods, product group, service and providing service need to be defined in the Rules to avoid any ambiguity in future; 7)The provision for cost records certificate should be kept which may either be certified by a Practicing Cost Accountant or the management to ensure cost competitiveness of the industry using the resources of the society. This will be applicable to industries which are not covered under the provisions of Cost Audit;

8)The activities mentioned under the companies engaged in strategic sector 3A need to be correlated with the Chapter heading of the Central Excise Tariff Act, 1985 to avoid any ambiguity;

9)Machinery, mechanical appliances and parts thereof, electrical/ electronic machinery equipment and parts thereof, automobile and auto-ancillary included in Chapters 84 85 and 87 of the Central Excise Tariff Act, 1985 need to be covered under the Rules to safeguard the interest of Central exchequer, as the country has experienced several disputes in this sector.