Mandatory Cost Audits

23 June 2007 |

Two articles from the news alerts on the MA Blog that caught my attention Mandatory Cost Accounting Norms Revised and Russia's Latest Bad habit.

The first article

"
The ministry of corporate affairs has started reviewing the way it orders mandatory cost audits on companies to optimise the coverage of each of the 44 sectors for which it has notified norms for keeping cost records.

In many sectors, cost audit data is used by the government for decisions related to pricing, excise duty, income-tax and in calculating the injury suffered by the domestic industry due to dumping. The audits also reveal the extent of efficiency and profitability of a company as well as the sector"

And the second article has

"
Only a few things are absolutely inevitable in today's world: death, taxes, and the Russian government's lusting after energy projects once they've been developed by Western companies."

The thoughts that come to my mind are:

  • Is Cost Audit only for large corporations ?
  • Is government using cost audit information to control the companies ?
  • Does the government use the information to design its policies ? Or
  • Cost Audit information helps the govt. to tax organised industries dear ? Cost/benefit to collect taxes from the unorganised industry is uneconomical.
Cost audit of large companies is imperative.... otherwise they would take the public for a ride.

My concern is why the government ignores the unorganised sector in forming the Cost Audit Rules even they are quite large. Although difficult, the government and public has to make the unorganised sector to promote good accounting practises.

One way is by encourage them to pool together and become a company or encouraging companies with tax subsidy to enter into that sector. The unorganised sectors that affect the common man are not covered by cost audit. Look at the retail sector that is under decision these days.

My question is - whether there is a political will in India to encourage all the industries to move towards making them a corporate entities. As they come under Companies Act, they that sector will be easier to manage. For e.g. local transport (taxis and auto) are run by individuals and managed by unions. Why not encourage them to form a company ? In developed countries taxi services by companies and they are lot better !!! To give examples Tata Salt, Cello pens, edible oils... Fifteen years back, these products in these sectors were rubbish.

Coming back to the point, India has to be organised in all sectors....this would promote good financial reporting and management accounting. Then the government will be able make proper decisions about pricing and taxation for all sectors in the economy. Otherwise India public will always be paying more for everything.

Cheers,

Santosh Puthran

  1. Tax Cuts - Simple Lessons in Economics - Must read article
  2. India's Retail policy attacked

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