Waiver of cost audit, rules for industries not producing essential goods: CII

31 January 2008 |

I read the Article "Waiver of cost audit, rules for industries not producing essential goods: CII" by Ganesh on 29-Jan-2008 and could not help pondering over the following point.

"Maintenance of cost accounting records entails a huge cost for companies in terms of time and money since they are required to be maintained in very minute and detailed manner. Details of all components of cost have to be included even though it may be insignificant. It may, at times, not be possible to extract such minute details even through a sophisticated ERP system. Maintenance of cost records is difficult for companies that produce multiple commodities, as actual consumption records have to be maintained for power, fuel and utilities per unit of production for each type of product. Moreover, non-application of these Rules to traded imported goods put our local industry to an unfair cost disadvantage, by unnecessarily increasing its transaction costs."

When I read this, I have ask a simple question, "Is there any company in the world that does not maintain Cost Accounting Records ?". In Middle East, it is not legal to get the Accounts Audited, but still the companies do it. Moreover they have Cost Accounting Records in place for decision making.

There was far cry in 1980s when the Railway was computerised in India and similar in 1990 in Banking Sector when Nationalised Banks were to be computerised - Loss of Jobs etc. You will notice now the private banks in India increased their business by the IT initiative bringing the Nationalised Banks to their knees by wooing their customers with superior services they can provide via their IT infrastructure.

huge wave


I am not in favour of Tax Audit or middle men like CAs hired for dealing with government regulations by individuals and companies. They are a huge burden to the business in dealing and meeting up with Government regulations. In US, the companies have to comply with SOX and it is perculated in all American business across the world. Moreover the world is moving towards IFRS and segmental reporting which places increased responsibility on the business for comprehensive reporting. These inititatives were to contain the frauds that occured in large corporations like Enron, World.com etc. India should be proud that they have the Cost Audit Regulations in place from year 1959.

Management Accounting is required for the business (no one can argue). When MNCs operate, they implement the best information system in the world and their internal reporting is more focussed in Management Accounts rather than Financial Accounts.

The conclusion from report by Ganesh indicates that some companies wants to avoid Cost Audit with a excuse that it is too expensive to maintain. Internally, if you ask, these companies Financial Controllers, they will tell you how many they spend Excel to provide the same information to their management.

The only difference at the end of the day when the companies avoid investing in an ERP system with proper management accounting is whether they are going to survive in the long run. As Napolean said, "War is 90% information."

Write to Ganesh - Click here

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Regards,


Santosh Puthran
Management Accountant Blog

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