Nov 18, 2011

Master Circular on Cost Accounting Records and Cost Audit

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 Master Circular on Cost Accounting Records and Cost Audit

Master circular has been issued on Cost Accounting Records and Cost Audit, vide  Master Circular No. 2/2011 dated 11/11/2011. This circular highlights the following points, which are already in practice, in accordance with the circulars issued earlier. It seems that efforts have been made to consolidate all previous circulars for ease of understanding and adherence.

1 A cost auditor cannot be appointed as the internal auditor of the company, for the period the cost auditor is conducting cost audit for the company. This has been made compulsory, since the auditor is required tocomment on the scope and performance of internal audit, therefore there is a high probability that a cost auditor may face a situation of conflict of interest.
2 The calculation for the specified number of companies for a given financial year, in which the cost auditor may conduct such audit, has to be calculated as per Section 233B(2) read with Section 224(1B) of the Companies Act, 1956. Companies, wherein the cost auditor has given his consent to act as such or companies in respect of which the cost audit report has not been submitted and has become overdue, shall also be taken into account for the purpose of specified companies.
3 The cost auditor shall be deemed to have concluded his appointment, as soon the auditor submits cost auditor report to CG, with a copy forwarded to the company. In this respect, it is to be noted that the obligation of the auditor to answer queries raised by MCA, arising out of review of the cost audit report, doesn’t bar the auditor from accepting appointment as cost auditor, from any other company, provided the specified limit does not exceed.
4 The duties of cost accountants conducting cost audit, shall be drawn from Section 233B of the Companies Act, 1956. Moreover, it is to be ensured by the auditor, that complete details of cost accounts are included in its Report, as per section 233B and Cost Audit Rules. In this respect, it shall be noted that earlier, the auditor could request for non-disclosure of any detail in the Report and the fact of non disclosure of any detail, if necessary, had to be brought to notice of government by a specific note in their reports. This clause hasn’t attracted any attention in this master circular.
5 In one of the earlier circulars issued on the subject, it was the duty of the Cost Auditor to bring to the notice of DCA (now MCA) of the non-maintenance of the prescribed books of accounts as required u/s 209(1)(d), so that necessary action against such company could be initiated by the Department and if the Cost Auditor failed to do so, then action could also be brought against the auditor. This clause has not been found in this master circular, which intends that it has been superseded.
6 If a firm of cost accountants has been appointed as the cost auditor, then the cost audit report shall be signed by one of the partners responsible for conducting cost audit and shall specify his/her membership numberIt is to be noted that, in any case, it shall not be signed by merely affixing the firm’s name.
7 If the company is conducting cost audit for the first time, then the cost audit report shall mention corresponding previous year data, which has been obtained from the management and shall contain a note on the same.
8 It has been again clarified through this circular that the term “auditors” includes cost auditor. Therefore, as per Section 292A of the Companies Act,1956, the cost auditor shall have discussions with the Audit Committee on the scope of cost audit including observations of the cost auditors as well as the suggestions made in the report regarding internal control systems. The presence of cost auditor in such committees will ensure the cost management, efficiency in resource utilization, business vertical-wise performance evaluation, proper pricing of the inter-unit/inter-company transfers and valuation of inventoriesThe cost auditor, therefore wherever appointed, shall attend and participate in the meetings of Audit Committee or Board (as the case may be), but the auditor shall neither be a member nor can he vote in any of the meetings.


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