ANTI DUMPING COST AUDIT PERSPECTIVE

1. ANTI DUMPINGCOST AUDIT PERSPECTIVE PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

2. INITIATION: • The proceeding was initiated following a complaint lodged in November, 2002 by the Committee of Cotton and Allied Textile industries of the European Communities, called Euro cotton or complainants. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

3. ISSUES: • Co-operating Companies do not report representative domestic sales of the like products, for determination of normal value required by basic regulations • The Commission then selected six biggest Pakistan Exporters, representing 32% of Pakistan’s volume of export of bed linen to the Community. The Exporters were asked to submit antidumping questionnaire PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

4. Questionnaire submitted, were examined and verified for the purpose of a determination of dumping, injury, causality and Community interest. • Verification visits were carried out, and for need of further examination of certain aspects of dumping, injury, causality and Community interest no provisional anti dumping measures were imposed. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

5. PRODUCT CONCERNED: • The product concerned is bed linen of cotton fibre, pure or mixed with man-made fibre or flax bleached, dyed or printed originating in Pakistan • LIKE PRODUCT: • During investigation, it was examined whether cotton typed bed linen produced by industry and sold on the Community market, as well as cotton type bed linen produced in Pakistan and sold on the Community market and on the domestic market were alike to the product concerned. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

6. The investigation, conclude with view although there were in some instances differences between product types product in the Community and those sold for Export to the Community, there were no differences in the basic characteristics and uses of the different types and qualities of bed linen of cotton type fibre. Therefore, the product manufactured and sold in the domestic market of Pakistan and were exported to the Community from Pakistan as well as the product manufactured and sold in the Community by the Community producers are considered as like products within the meaning article ‘(4) of the basic Regulation. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

7. Pre-verification of Analysis submitted by the sample Exporters. • Export prices with the Cost of Production reported by each Company, reveled that profits on sales of the product concerned to Communities ranged from 20% to 40% per Company, expressed as % of turnover. • These margins were furthermore in sharp contract with the average negative profit margins around 10% on turnover reported by the same Companies for sales of the product concerned to other Countries, in contrast to the 1.6% profit margin on turnover on other similar business • The audited Accounts witness 5% profit margin. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

8. CONCERNS • All information available indicated that the reported figures were overestimated and given the fact that export prices were in line with Euro stat, there was a reasonable presumption that this was a consequence of an underestimation of the reported costs of production for the product concerned • Despite submission by the company that detailed cost accounts for the product concerned it was alleged on spot that no such accounts or supporting documents were available PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

9. No substantiating evidence as normally kept in the companies record, for verification of reported cost of product concerned. • Reasonable reflection of the cost associated with the production and sale of the product concerned • Non-availability of information on costs of like product exported to other countries. • Accounting record were not in compliance to GAAP, specially inventory valuation Remarks: Information regarding costs and profit of the product concerned could therefore, not be accepted as reported, due to non-verification, and information provided wasfalse. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

10. COST AUDIT PERSPECTIVE: The history of Cost Audit traces back to the period of 1st world war, when a large number of contracts were awarded on cost plus basis, which compelled the contractors to maintain cost accounting records and keep the same, open for scrutiny or audit by the Government. The financial audit does not evaluate the performance of the company with regard to cost of production. It has greater emphasis on compliance of law. Cost audit lays emphasis on performance evaluation and with analytical review of cost data, detects the reasons of visible and invisible losses, inefficiencies, unusual wastages and cost variances with the past performance, and / or industry averages. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

11. By applying various management accounting techniques, cost audit results in reduced cost of production, added competitive advantage, and profit maximization. At the macro level, it improves tax collection, counter inflation, and give a fillip to dividend, investment and economic development • Vital measure for cost containment policies in hyper-inflationary trends • Sector producing items of mass use • Loss making companies need to be subject to a thorough Cost Audit. Cost Audit should be taken up both in letter and spirit. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

12. Cost audit is not punitive in nature. It is rather suggestive and derives its force from the maxim, 'prevention is better than cure'. It identifies areas of weaknesses, invisible losses and unaccounted inefficiencies, which ultimately result in adverse effects on the financial health of an organization. Cost audit helps in getting early warning signal for remedial actions. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

13. It can be done under Section 258 of the Companies Ordinance, 1984 : and it implemented through: S.R.O. 386 (I)/94.-14th May, 1994 CEMENT INDUSTRY (COST ACCOUNTING RECORDS) ORDER, 1994 S.R.O. 97(I)/2001.- 13th February, 2001 SUGAR INDUSTRY (COST ACCOUNTING RECODS) ORDER, 2001 S.R.O. 1131 (1)|90.1st November, 1990 VEGETABLE GHEE AND COOKING OIL COMPANIES (COST ACCOUNTING RECORDS) ORDER, 1990 S.R.O. /I/2008.-26th September, 2008 Companies Cost Accounting Records (General Order), 2008. Applicable on Fertilizer, Thermal Energy, Petroleum Refining, Natural Gas and Polyester Fibre Industries. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

14. Mandatory Cost Audit has proved a very successful experience in development of macro economies of SAARC countries such as India and Bangladesh. India's experience The success of economic development in India and their lower competitive cost in the international market is mainly due to vigilant and implementation of cost accounting records in 44 industries covered under Cost Accounting Records Rules as on 1-4-1998. The experience of cost audit in India has been very excellent, as it is evident from the record of corporate governance, dividend pay outs, modest level of price of industrial products and its competitive edge in the export market, which speak volumes of the benefit of cost audit which have accrued to the Indian economy. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

15. The financial health of any company largely depends on the cost of production, which constitutes a very substantial cash outlet of the company. Readers of this financial statement cannot evaluate whether the company has performed in the most efficient manner in the given or prevailing circumstances • The above shortcomings gave rise to the need to examine the accounts of manufacturing concern with a view to ascertain whether the company has been able to : • achieve optimum level of production • eliminate or minimize wastages • control consumption ratio of materials and energy cut down overhead expenses • deploy available manpower in the most efficient manner • consider diversification of production wherever feasible and • Perform well in the given level of competition existing in the market. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

16. These analysis are necessary not only from the point of investors but also from the point of view of the government particularly in developing countries to ensure that the scarce resources of the country are being deployed in the most efficient manner. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

17. TOOLS OF COST AUDIT:- ELEGIBILITY FOR COST AUDITOR: The companies subject of cost audit shall be required to get its cost accounts audited by a cost auditor who is a Chartered Accountant within the meaning of the Chartered Accountants Ordinance 1961(X of 1961) or a Cost and Management Accountant with the meaning of the Cost and Management Accountants Act, 19966 (XIV of 1966). PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

18. Principles of Cost Audit • Code of Ethics:- • Independence • Integrity • Objectivity • Professional competence and due care • Confidentiality • Professional behavior • Technical standards. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

19. COST AUDIT PROCEDURE: Cost Auditor perform cost audit in accordance with the specified cost audit program, guidance available in Cost Audit Handbook, published and distributed by ICMAP • SAMPLE FOR THE MARGIN PER UNIT OF OUTPUT. • AUDIT STEPS • Verify the margin per unit of output on domestic sales and export with reference to cost statements. • If sales made under group of product, check and verify margin per unit of output of all the major group of products. • In case of significant variations in the margin compared to previous year, the reasons for the same be ascertained and recorded. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

20. SPECIFIC COST RECORDS FOR THE REQUIRED INDUSTRIES ARE:- CEMENT INDUSTRY: (1) Quarry (2) Transportation (3) Crusher (4) Stock hall (where applicable) (5) Raw mill (6) Kiln (7) Grinding (8) Packing and storage PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

21. Costs of these departments are to be classified as “direct departmental cost” and “indirect departmental cost” so as to conform to or as near thereto as possible to such detailed headings as described in the various annexure. Indirect departmental cost represent cost of service departments such as those producing compressed air (Annexure IX), power (Annexure X) and other general expenses (Annexure XI). The indirect departmental cost shall be transferred to the above production departments. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

22. Important items of cost • Raw Material • Labour • Furnace Oil/Gas • Electric Power • Consumable Stores • Repairs and maintenance: •   Compressed air • Depreciation • Insurance • Other Overheads • Administration, selling and distribution expenses • Work-in-process and finished goods inventories • Packing • Statistical Statements and other records • Reconciliation of cost and financial accounts PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

23. Reconciliation of Cost and Financial Accounts: If integrated accounts are not maintained, the cost records shall be periodically reconciled with the financial accounts to ensure accuracy. Variations, if any, shall be clearly indicated and explained. The reconciliation shall be done in such a manner that the profitability of each product produced and sold is correctly judged and reconciled with the overall profits of the company from all of its activities. Adequate cost records shall be maintained in a manner so that the cost statements may be compiled. PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP

24. THE DETAILED SHEETS ARE IN ATTACHED FILE FOR: DETAILED REVIEW OF COST PROCEDURES AND DETAILED FORMS : KINDLY VISIT OUR WEB SITE www.icmap.com.pk Q & A welcomed PRESENTED AT TDAP-KARACHI. MUSHTAQ A MADRASWALA -- EXECUTIVE DIRECOTR ICMAP