The purpose of auditing in companies is to produce the auditor report for regulatory bodies. All listed companies submit the auditor’s report. The regulatory bodies and investors believe in the financial performance and the audit report from the auditors. In a broad view, apart from statutory audits, the companies conduct internal audits, tax audits, cost audits and secretarial audits. In a company, the cost accountant and company secretary work permanently. Chartered accountants have the option to do employment or practice. The cost accountants and company secretaries also have the choice of doing business and a job. The difference is the role of a cost accountant and company secretary is more suitable for employment than independent practice.
The Government of India in association with MCA has constituted a committee for writing a report on cost accounting records and cost audit framework. The report was out after the research on 30, January 2024. The report was available for public comment from 10, July 2024. The key stakeholders of the research report are the following institutions: ICMAI, FICCI, All India Cost and Management Accountants Association, CII, PHDCCI, ASSOCHAM, SCOPE, CII, government departments, administrative ministries and regulatory authorities. The research is about cost accounting practices, the use of cost strategies in pricing and decision making and the prevalence of cost audits. The report concludes that the UK, France, USA, Germany, Japan, Italy, and South Korea have robust cost accountant certification systems and cost accounting rules. The cost information is the basic data for decision-making and calculating the cost-benefit analysis. In the UK, the costing techniques are taught to students to enhance their application knowledge. The blog highlights valid information on cost audits from the recent research report of the regulatory authority MCA.
History of cost audit:
FCCI declares that the cost audit came into practice after the independence to incorporate transparency and maintain price control in key industries. The stakeholders view the cost information on a positive note. FCCI says that in the current market, competition and price excessiveness are the common factors. In the current scenario, business experts think cost audit is less relevant. The companies maintain the cost records to understand the competition and not for price control strategies. The mandatory cost audit discloses confidential information and harms the competing capacity of the company. FCCI also declares that the statutory audit checks the financial systems, segment margins and inventory valuations. The cost audits are additional expenses and also affect India’s goal of improving the ease of doing business. The theories and practices taught in ICMAI are based on the principles of cost audits. The cost audit reduces the limitations of financial audits.
In India, the cost divides the economic resources. Cost plays a vital role in demand, supply, pricing and allocation of resources. Cost information is useful for understanding the performance, production and distribution. The three fundamental pillars of the cost accounting system are efficiency, economy and effectiveness. Cost information also assists in deciding the resource allocation, performance planning and pricing. In China, cost management is the secret behind the sale of Chinese products around the world. The Chinese are ruling the world. In China, there is no authoritative institute for cost accountancy certification like ICMAI or CIIMA. Profit and surplus of revenue over expenses are factors that help to sustain in difficult times. The Indian government allocated INR 1.48 lakh crore for education in the 2024 budget. The fact is in India around 50 per cent of the education delivery system is in the hands of the private sector. The allocation of money and benefits to the public is the question here. It is doubtful that the government has information about the expenses for education, resources and the success of the government schemes. The threshold limit of turnover for the cost audits has been doubled. The threshold limit for cost audits requires review from experts. The CSR stipulation of the Companies Act also demands a cost audit. Cost audit improves operational sustainability and makes the business competitive.
Benefits of cost audit:
- In mathematical terms, the cost is interrelated to the profit and profit has a connection with sustainability.
- If the resources are scarce in a country, the driving factors are the competition and the cost.
- In a competitive market, cost determines the fortune. The market forces demand and supply decide the price.
- Financial scandals like the Dalmia-Jain group of companies urge for the necessity of mandatory cost audits.
- Cost management is the pillar for measuring performance.
- Cost and management accounting help strategic decision-making.
- Financial management and cost behaviour are the crucial elements of a business.
- The practice of informed decision-making and pro-activeness improves competitiveness.
- The shareholders have the fundamental right to know the money management and performance indicators of the business. The statutory and secretarial audits are part of the audit report. The information gained from cost audits contributes to the success of the business. The performance indicators derived from the data analytics are factors behind the success. So, giving importance to cost audits improves profitability and competitiveness.
Cost audit in foreign countries:
The cost accounting system in foreign countries like the UK, USA, Germany, Japan, Italy and South Korea makes use of the cost information. The cost information is to make informed decisions and do a cost-benefit analysis. In the technological world, the newer tool supersedes the old one. Similarly, the modern practices eradicate the old practices in the cost management. Foreign countries use cost accounting to evaluate product processes, restructure production, monitor audit expenses, and implement the right pricing strategies, effective supply chain management, inventory management and demand forecasting. China rules the world with efficient products as the country understands inventory management, demand forecasting and overall cost management. Manufacturing and marketing are the two different subjects in business that show the way to economic development.
Final Words:
The stakeholders put forth the recommendation of setting provisions for the cost auditors like the mandatory provisions of statutory auditors. The rationalization of the professional qualifications improves the opportunities for cost and management accountants. The research paper of MCA clarifies the points related to the guidelines to maintain cost audits and the benefits of cost accounting systems. The cost audit is beneficial for understanding the competition and promoting the policy of ease of doing business. As a developing country, India values the policy ease of doing business.