Cost Audit Awareness in India

21 January 2007 |

I came across a discussion topic by Murari Limaye on cma india discussion board with a request to brain storm on it. The topic is very interesting and reproduce the questions below:

The points initialy came in my mind are...

1. We have to prove that the Cost Audit is necessary because it helps to Government, Industries,Stake holders.
2. What are the advantages of Cost Audit to these institutes?
3. Are the reports are used by the Government to control the prices that we do not know as it is kept secret.
4. If required we have to give presentation on how to use the Cost Audit Report para to para.

5. Is the current Cost Audit report is too large and unrequired information is to be removed?
6. Is this report is to be given to shareholders also?
7. Why all the manufacturing industries and service industries are not covered for cost record maintainance as well as cost Audit Report? and so on.....


I have never been a supporter of too much controls on business. But at the same time control should exist so that all the stakeholders are protected. Take a simple case how controls are waste of time for you as a person. You come from US to India and land on airport. You need to convert US dollars to Rupees and you have 50 $ 10 notes. If you have exchanged in any US airport, it would have taken you maximum 3 minutes on the counter but the same process will take more than 15 minutes. What would happen, if you 5th person in the queue.

The reason, you have to write all the currency numbers that you submit for exchange and then you are going to get Indian Rupees for it. Sheer waste or time and energy... That is what is control all about.

My thoughts on Cost & Management Accounting practises and way ahead is as follows:

Dear Murari,

My thoughts on the subject are :

  • Cost Audit and Management Accounting are two different aspect and we have been stressing persistently on Cost Audit and its importance rather Management Accounting. The stakeholders of information on Cost Audit are two few ie. govt. authorities and practising cost accountants whereas the management accounting will be the Directors, all levels of management of the company.
  • The institute and the members have to create awareness that good management accounting practises and disclosures in Annual Statement of that company gives a confidence to their stakeholders viz. Shareholders, Customers, Vendors, Govt. Authorities that their interests are safeguarded. This can equated to Audit Committee and Internal Audit disclosures to be the made in Annual Reports. Our institute should pursue to get that included as a legal provision of healthy practises followed by the companies and the directors should comment in their report. This legal provision in direction will enlarge the scope of management accounting in India and will gear up the companies to be competitive.
  • ICWAI has come up with two few standards. This may leaves scope for creative accounting practises. In service industry, focus is on labour accounting i.e. accounting of utilisation of time. Are there any standards how to show them or record them ?
  • In my opinion, the Cost Audit Report will be of no interest to shareholder since they are more bothered about dividends and what is the prospect of the investment.
  • You are quite right in pointing out that Cost Accounting rules should be available for service industries. ICWAI has to come with drafts and discussion papers on Cost & Management Rules/Records/Practises on the industries that are not covered by Cost Accounting Rules. It is always good to have something in place and it is voluntary for the companies to follow.
I have stressed earlier in the discussions in yahoogroups that ICWAI has to come up with the task force to encourage popular accounting packages in India to support Cost Accounting Record Rules and advice them wherever necessary. Accredit some of the software packages that the companies can get their reports/records as per Cost Accounting Rules. This will help to penetrate cost accounting practises in small and medium sized companies in India.

India is a very large market. So take a bite at a time

Regards,

Santosh Puthran

AICWA





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