Cost accountants raise concerns over cost audit draft rules

Raising concerns over proposal to relax eligibility norms for cost audit of companies, the umbrella organisation of cost accountants today urged the government to modify the draft rules, especially since the planned criteria excludes small and medium enterprises.

 

The Institute of Cost Accountants of India (ICAI) has expressed reservations on the cost audit draft rules, under the new Companies Act, released by the Corporate Affairs Ministry on November 21.

 

Going by the draft rules, issued on November 21, the threshold limits for companies required to carry out cost audit has been increased. The threshold limit for net worth of companies has been increased to Rs 500 crore from existing Rs 5 crore, while that for turnover has been raised to Rs 100 crore from Rs 20 crore.

 

ICAI President Suresh Chandra Mohanty in a statement said the institute would take up the matter "at all levels" to modify the draft rules before notification.

 

Citing the increase in threshold limits, the institute said the draft rules have excluded companies operating in SME (Small and Medium Enterprise) sector. "In the absence of an effective cost management system, India will lose out to neighbouring countries," the statement said.

 

Noting that an effective cost accounting system is itself a risk management mechanism, Mohanty said it also helps in detecting frauds.

 

The draft rules "fail to reflect the necessity and importance of mandatory requirement for maintaining cost accounting records and cost audit in a market economy", it added.

 

Emphasising that an effective cost accounting system supports the corporate governance mechanism, Mohanty said the draft rules does not answer the question why integrity of cost information is not important for independent directors and the company's board.

 

The institute also observed that the Ministry ignored recommendations of the expert group on cost accounting system while framing the draft rules.

 

The draft rules on cost audit are open for public comments till December 6.