19-12-2012, 05:45 PM
BENEFITASPECTS OFTHE MANDATORY COSTAUDIT IN INDIA
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ABSTRACT
The paper takes cost audit and role of mandatory cost audit in the scenario comparing it with benefit
aspects. It is necessary that either in financial accounting or in cost accounting or in management
accounting system, wherever books and records are kept, they must be examined independently to ensure
that they have been kept and recorded fairly and correctly and that there are no errors of omission and
commission and there are no defalcation.
INTRODUCTION
Immediately after our country became independent,
large-scale industrialization took place. Lot of
concessions and facilities were given to entrepreneurs
to establish industrial undertakings for production of
common goods and essential services. Power was made
available at confessional rates. The banks and financial
institutions provided liberal finances. Land was made
available with all infrastructures. Transport facilities
were provided. The government in turn had a right to
ensure that ultimately the consumers are benefited in
that they are able to obtain their requirements at a fair
price and do not pay for the inefficiency of
manufacturers.The Institute of Cost and Works
Accountants of India was set up in 1944 and its statutory
recognition under the Cost and Works Accountants
Act, 1959 marked beginning of the profession of cost
accounting.
In order to assess the productivity of some
important industries which had direct bearing on the
supply management system for the growth of Indian
economy and as a service to the society, Cost
Accounting Records under section 209 (1) (d) under
Companies Act, 1956 came In force. The information on
input cost of products, machine utilization, unit selling
prices and profitability of individual products etc. as
required could be maintained. “Cost audit would
apparently mean an examination of cost books, cost
accounts, cost statements and subsidiary and prime
documents with a view to satisfying the auditor that
these represent a fair and true view of the cost of
production. This will naturally mean an examination of
the appropriateness of the cost accounting system
adopted by the business and effectiveness of its
implementation.
To the Costing Department
1. Cost audit exercises good moral influence on the staff
of costing department. 2. It keeps the books of accounts
and records upto-date. 3. Suggestions by the auditor
improve the routine and procedures of the department.
4. A clean audit report enhances the prestige of the cost
accountant and his department.
5. It improves cost accounting methods and internal
checking system.
To the Government
1. It helps the Government in price fixation and price
control. 2. In matters of tariff protection to certain
industries, audited cost accounts present reliable cost
structure to the Governments. 3. In cost-plus contracts,
entered into by the Government with the private firms,
the correct costs can be ascertained and payment of
bills is made readily. 4. Country’s economic planning
based on production, imports, exports, etc., can be
better decided based on audited cost data.
To the Statutory Audit
1. The statutory auditor is generally relieved of his
responsibility towards the checking of accounts to the
extent the internal Cast Auditor has checked them.
2. The statutory auditor can safely pay his attention to
the matters, which are related to the objects of his audit.
SCOPE OF COSTAUDIT
There are two main aspects of cost audit—(l) Propriety
Audit, and (2) Efficiency Audit.
1. Propriety Audit:
It has been defined as “audit of
executive action and plans bearing on the finance and
expenditure of the company”.This audit is related to the
propriety, i.e., fitness or rightness of the expenditure
made. An expenditure may have been sanctioned and
it may have been supported by the vouchers, yet the
propriety audit has to satisfy whether or not the
expenditure made was appropriate to the circumstances
of the case and that there could not have been a better
alternative. So this audit is concerned with the audit of
such actions of the executives as have a bearing on the
finances and expenditures of the company or
concern.The cost auditor, under propriety audit, has to
ensure thata) the expenditure has been planned in a
way as to give the optimum results;(b) the planned
expenditure its size and channels have produced the
optimum results; © there is no other better alternative
to the expenditure made and results obtained.
CONCLUSION:
The Indian economy is passing through the critical
phase of reforms, wherein the administered pricing
mechanisms are being dismantled in most of the places
and the regulatory authority mechanism is taking its
place. Liberalisation does not eliminate the need to
regulate prices and profits to bring about economic
balance. The regulatory authority mechanism is
considered more transparent and efficient. In many
countries, policy makers and financial administrators
struggle to develop an appropriate regulatory framework
with the objective to stimulate innovations and market
penetration on the one side and ensure sound business
practices or good corporate governance on the other
side.Further regulatory mechanism should be applied
in a manner, which would usher in investment and
efficiency. Regulation itself is imperfect when the right
regulatory mechanisms are not clearly defined. It is
imperfect when it is implemented without an adequate
information base and sophistication.