Chartered accountants, cost accountants, and company secretaries are the representatives of the law. ICMAI is constantly following the ministry to bring changes to the audit of companies. According to the Companies act 2013, cost accountants are eligible to do cost audits. Chartered accountants do audits under the income tax act of 1961. In the January month newsletter, the president of ICMAI, Vijender Sharma, said that the institute is waiting for approval from the Indian government. By approving the proposal, cost accountants audit the MSMEs and banks. Cost accountants bring changes to international standards. ICMAI submitted the pre-budget memorandum recently. In the 2023 memorandum, the ICMAI institute mentioned the change in the income tax act regarding the definition of an accountant. The institute submitted a representation for the audit with international standards to the MSMEs, private limited companies and banks. The blog engages the readers with insight into the cost audit.
Difference between the income tax act and the companies act:
The income tax act is to administer income tax from various groups. Companies act explains the functioning, registration, financing and dissolution of companies. Companies act states the meaning of a company as an association of persons. As per Indian law, the commercial association is divided into company and partnership. The company act is to encourage the association for science, art, commerce, sports, religion and charity. The association without profit making is accepted as the company. The term company as per the Income tax act, of 1961, means any Indian company or corporate incorporated under laws outside India. Any company declared by special or general order and company assessed under the Indian income tax act, 1922, is referred to with the term company. The legal identity of the company and owner are distinct. As per the Income tax act, depreciation is a calculation based on the straight-line method or WDV method. Under the companies act, the depreciation is as per the usage.
Provisions regarding cost audit:
As per the company act, certain records of the companies are audited by the cost accountants. Cost audit is applicable for companies with more than 35 crores of turnover, the company’s products should be as per the tabulated goods and services under rule 3, and cost records maintenance is for the specified goods and services. The following cases are exempted from the cost audit: A company with more than 75 per cent of revenue from exports, a company operating in the special economic zone, and a company producing electricity for the captive generating plant.
Cost records of MSME:
Cost accountants help MSMEs in the initial and grooming stage. The project report explains the summary of the business, the scope of the business, target, resources, sources of finance, investment with specifications, project financial statement, financial projections, statutory approval details, the process of manufacturing flow chart, demand and use of the product in the market, break-even analysis, and ratio analysis. Chartered accountants, cost accountants and ex-bankers help the companies in the preparation of the cost report. The advantages of cost audit in MSMEs are explained below:
• The MSME helpdesk is a potential plan to initiate a self-reliant India.
• Exports are the key to capturing international markets. Cost accountants are good at setting strategies for MSME development.
• The Atmanirbhar Bharat Programme enhance the incremental growth of the various sectors.
• Rationalisation and stabilisation of the workforce in the MSME sector is the crucial part of to function of the MSME sector.
Cost records of Banks:
Companies need to maintain cost records to submit CRA-1 forms. If there is a vacancy in the post of cost auditor it should be filled within thirty days. The central government collects information regarding the cost auditor. The appointment is informed through the CRA-2 form. Cost records are the accounts related to labour, materials and other items. Cost records are used to find out the marginal cost. The cost of production, operations and sales are calculated by the cost accountant using the cost records. The cost audit report is submitted to the board first. The board submit the same report to the central government within 30 days after the receipt.
Different forms for cost report:
The four types of forms to record the cost information are CRA-1, CRA-2, CRA-3 and CRA-4. On a monthly, quarterly and annual gap, the CRA-1 form is updated. CRA-2 is the information about the appointment of the cost auditor. CRA-3 is the cost audit report. CRA-4 is the form submitted by the company to the central government. The company will include the information, explanation and other things marked by the cost auditor in the CRA-4 form.
Conclusion:
Cost accountants are the authorities to conduct an internal audit as per section 138 of the companies act, 2013. Cost audits and statutory audits are different types of internal audits. The cost audit is as per section 148. Rule four of the company act, 2013 states that cost audit is based on the sector and turnover limits. For the regulated sector, the threshold is 50 crores. For individual products and services, the threshold is 25 crores. The following can take up the work of an internal auditor: cost accountants in practice, a firm of cost accountants, and an LLP of cost accountants. After passing a resolution on board, the cost accountants get removed from their duties. The MSME industry improves export activity. Forty-eight per cent of export activity is from MSME. Banks provide support to trade activities and monetary policy. MSMEs and banks are the pillars of the economy. The stabilisation of the internal audit of MSMEs and banks increases economic activity.
