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COST AUDIT

COST AUDIT. A comprehensive presentation. Swajan K Sen , Mech Engg,, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280. India is the first country in South Asia (and perhaps in the world) to make cost audit mandatory.

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COST AUDIT

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  1. COST AUDIT A comprehensive presentation Swajan K Sen , Mech Engg,, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  2. India is the first country in South Asia (and perhaps in the world) to make cost audit mandatory. • The Institute of Cost and Works Accountants of India (ICWAI) supervises it and is the custodian. • Vide The Gazette of India dated June 3 2011 it becomes mandatory w.e.f 1st April 2011 • It is to be monitored by the Govt of India through it’s economic branch the Ministry of Corporate Affairs. • It attracts the following sections of Companies Act • Sec 233B • Sec 209(1) (d) • Sec 600(3)(b) and Rule 2 of Co.Act (Cost Accounting Records) Rules, 2011 OVERVIEW Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  3. WHAT IT IS ? “It is the detailed maintenance & checking of the cost in relation to any activity of business - • It’s origin • It’s recording • It’s maintenance • It’s justification • AND to arrive at Total Cost  Sales Price  Profit As a whole it is a study of the system, technique and to verify their correctness and to determine actual cost of any product or services. Objectives of cost audit include the determination and control of cost together with providing data to arrive at decisions on various matters, such as operational efficiency. Data generation and capturing shall be industry specific. Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  4. WHY ? Every one will agree that we are at the verge of exhausting our natural resources. Technocrats do conserve them by process refinements and scientists by innovations. However, the actual effect of such efforts were not being recorded systematically so as to increase the profit of an enterprise by best industrial engineering processes and to conserve the resources especially as to when we know in few years we might not have coal and oil. Hence it is a need to dig down to cost and optimize it, rather than chasing revenue…it is a time for the survival of the fittest. Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  5. From the perspective of management: Cost audit detects correct cost that provides opportunity to quote better and increases competitiveness in the market and enhances efficiency. . From the perspective of shareholders: Cost audit ensures that the valuation of closing stock and work-in-progress are correct, hence helps in the computation of more accurate profit figures. From the perspective of the government: • Increased profit means increased government exchequer • Conservation of resources by way of reduction in wastage • Higher productivity and higher GDP & PCI From the perspective of customers: Customers may obtain more benefit if the cost is reduced due to effective control. OBJECTIVES Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  6. APPLICABILITY The said Rules are applicable to all companies engaged in production, processing, manufacturing and mining activities as defined under Rules 2(j), 2(k), 2(l) or 2(o) respectively and where: a) the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or b) the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or c) the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India. Any company meeting the above criteria would be required to maintain cost accounting records and file a Compliance Report in the prescribed format from financial year commencing on and from 1st April 2011. Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  7. UNDERSTANDING APPLICABILITY Cost Audit applies to – Specific activities undertaken by an organization. Please note IT APPLIES TO ACTIVITIES and NOT TYPES OF COMPANIES Unlike 44AB of Income tax Act applies to just turnover Hence, in a multi activity company, one activity may be attracted and may not. What Activities then ? Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  8. UNDERSTANDING APPLICABILITY How is production & manufacturing defined .. (j) “Manufacturing Activity” includes any act, process or method employed in relation to – • Transformation of raw materials, components, sub-assemblies, or parts into semi-finished or finished products; or • Making, altering, repairing, fabricating, generating, composing, ornamenting, furnishing, finishing, packing, re-packing, oiling, washing, cleaning, breaking-up, demolishing, or otherwise treating or adapting any product with a view to its use, sale, transport, delivery or disposal; or • constructing, reconstructing, reconditioning, servicing, refitting, repairing, finishing or breaking up of any products. Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  9. UNDERSTANDING APPLICABILITY How is processing defined .. (l) “Processing Activity” includes any act, process, procedure, function, operation, technique, treatment or method employed in relation to • altering the condition or properties of inputs for their use, consumption, sale, transport, delivery or disposal; or • accessioning, arranging, describing, or storing products; or • printing, publishing, finishing, perforation, trimming, cutting, or packaging; or Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  10. Duty of Company under Companies (Cost Accounting Records) Rules 2011 Company to maintain Cost Accounting Records as per Cost Accounting Standards and Generally Accepted Cost Accounting Principles Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  11. Audit compliance Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  12. There used to be two types of Statutory Audits now that becomes three … 1 . Govt Audits – (Applicable to Govt or Govt monitored companies) CAG Audit, CVC Audit, RBI Audit, Special Audits, Defense Audit etc – Generally not applicable to private companies unless there is a reason by Govt of India. Audit is done by - C&AG, RBI, and by special enforcement personnel 2. Financial Audit u/s 224 of Companies Act 1956 and Tax Audit u/s Sec 44 AB of I.T.Act Audit of the accounts of certain assesses. Tax audit is done by - Chartered Accountants holding COP 3. Cost Audit Recently introduced by Govt of India vide section 233B of Companies Act 1956 in the year 2011. Mandatory Cost Accounting Records rule to follow Mandatory Cost Accounting Reports Rule to follow Cost Audit is done by - Cost Accountants holding COP Statutory Audits in INDIA Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  13. The Company has to follow and maintain Cost Accounting Standards CAS as issued by Cost Accounting Standards Board – • CAS1- Classification of Cost • CAS2-Capacity Determination • CAS3-Overheads • CAS4-Cost of Production for Captive Consumption • CAS5-Average (equalized) Cost of Transportation • CAS6-Material Cost • CAS7-Employee Cost • CAS8-Cost of Utilities • CAS9-Packing Material Cost • CAS10-Direct Expenses • CAS11-Administrative Overheads • CAS12 -Repairs And Maintenance Cost CAS13 -Cost of Service Cost Centre COST AUDIT DETAIL- 1 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  14. COST AUDIT DETAIL- 2 Company has to follow GACAP (Generally Accepted Cost Accounting Principles) Swajan K Sen , Mech Engg, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  15. COST AUDIT DETAIL- 3 Salient features Appointment of Cost Auditors • Cost Auditor to submit his consent letter to BOD for his appointment u/s 233B(2) of Co.Act 1956 as required u/s 224(1-B). • Company has to pass a resolution. • Company shall e-file Form 23C within 90 days from commencement of eachfinancial year • certified copy of Board resolution • Consent letter from auditor • Challan for fees • Auditor to e-file Form 23C • Containing- Consent letter u/s 224(1-B) , Tax Pan , Membership number , Email id of the auditor, Scope of Audit • Company has to furnish the form 23C & SRN to Auditor • Appointment deemed to be approved by Central Govt. • Company has to issue appointment letter to Auditor • Failure to comply shall attract penalty u/s 209(5), 209(6), 209(7), 233B(11), 642(5) and 642(7) of Companies Act 1956. Swajan K Sen , Mech Engg,, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  16. COST AUDIT DETAIL- 4 ** Annexures to be signed by at least 2 directors of the company. REPORT FORMS Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  17. COST AUDIT DETAIL- 5 • ANNEXURE TO THE COST AUDIT REPORT • [See rule 2 and rule 6] • 1. GENERAL INFORMATION: • 1. CIN or GLN of the company: • 2. Name of the company: • 3. Registered office address: • 4. Corporate office address: • 5. E-mail address of the company: • 6. Company's financial year to which the Cost Audit Report relates: • 7. Name, address, membership number and e-mail of the Cost Auditor(s): • 8. SRN Number and date of Filing of Form 23C with the Central Government: • Date of Board of Directors' meeting wherein the Annexure to the cost audit report • were approved • 10. No. of Audit Committee meetings held by the company, and attended by the Cost Auditor during the Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  18. COST AUDIT DETAIL- 6 • 2. COST ACCOUNTING POLICY: • Describe the cost accounting policy adopted by the Company • Cost accounting standards and its adequacy • Determine correctly the cost of production/operation, cost of sales, sales realization and margin of the • product/activity groups separately for each product/activity group. • The policy should cover, inter alia, the following areas: • a) Identification of cost centers/cost objects and cost drivers. • Accounting for material cost including packing materials, stores and spares etc., employee cost, • utilities and other relevant cost components. • c) Accounting, allocation and absorption of overheads • d) Accounting for Depreciation/Amortization • e) Accounting for by-products/joint-products, scarps, wastage etc. • f) Basis for Inventory Valuation • g) Methodology for valuation of Inter-Unit/Inter Company and Related Party transactions. • h) Treatment of abnormal and non-recurring costs including classification of other non-cost items. • IFRS – Not applicable • Observations of the Cost Auditor regarding adequacy or otherwise of the Budgetary Control System. Swajan K Sen , Mech Engg, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  19. COST AUDIT DETAIL- 7 NOTES: (1) For manufactured product groups, use the nomenclature as used in the Central Excise Act and Rules, as applicable. (2) For service groups, use the nomenclature as used in the Finance Act / Central Service Tax Rules, as applicable. Swajan K Sen , Mech Engg,, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  20. COST AUDIT DETAIL- 8 Swajan K Sen , Mech Engg,, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  21. COST AUDIT DETAIL- 9 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  22. COST AUDIT DETAIL- 10 Swajan K Sen , Mech Engg, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  23. COST AUDIT DETAIL- 11 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  24. COST AUDIT DETAIL- 12 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  25. COST AUDIT DETAIL- 13 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  26. COST AUDIT DETAIL- 14 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  27. COST AUDIT DETAIL- 15 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  28. COST AUDIT DETAIL- 16 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  29. COST AUDIT DETAIL- 17 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  30. COST AUDIT DETAIL- 18 Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  31. COST AUDIT DETAIL- 19 Appointment of Cost Auditor Ensure system so that required data can be captured Auditor to complete the audit and directors to authenticate reports Auditor to be ensured that data shall be furnished Statutory Auditor to be furnished copy to reconcile the financial audit Auditor to submit report to Central Govt Swajan K Sen , Mech Engg, F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  32. Gentlemen, Did you like it ? How do you rate it in terms of 10 marks max . You are important, hence your opinion is too important. Swajan K Sen , Mech Engg, , F.I.C.W.A, LL.B, LL.M (I) , Ph 9830563280

  33. Disclaimer This presentation site is only intended to convey information. The author has taken all usual and reasonable precautions to determine that the information contained herein has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze such information are based on approved practices and principles. However, the author does not make any warranty as to the accuracy or completeness of information, analysis or views contained in this presentation. The author accepts no liability of whatsoever kind for any damages or losses incurred by you as a result of reliance upon the presentation. Opinions expressed are personal in nature and subject to change without not ice. Texts presented and provided here are to be used only for Uniseven Engineering & Infrastructure Pvt Ltd and should not be used for or by any other person including any organization for their own or for the use of any related or non related party. The slides carry proprietary right. Swajan Kr Sen Mech Engg, F.I.C.W.A, LL.B, LL.M (I) Ph 9830563280

  34. THANK YOU & Swajan Kr Sen Mech Engg, F.I.C.W.A, LL.B, LL.M (I) Ph 9830563280

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