Apropos Asish K Bhattacharyya’s column “Is multiplicity of audit bad?” (Accountancy, December 24), common sense dictates that in a heavily legislated and regulated economy such as India, a case should be made for less rather than more audit. While statutory (or public) audits and internal audits are equally prevalent in the western economies, there is no corresponding precedent for cost (or management) audits. Statutory audits have a history of over 50 years in India, while internal audits have been gaining significance over the last decade — not only because companies over a certain size are required by the Companies Act, 1956 to carry out such audits, but also company managements and audit committees are increasingly convinced that internal audits are an integral part of better internal controls and of effective corporate governance. A similar justification does not exist for cost audits.
Since statutory auditors are required under the Companies (Auditors’ Report) Order, 2003 to comment on whether cost records have been maintained by companies, there is already a certain degree of oversight being exercised in respect of cost records by statutory auditors. Similarly, internal auditors as a part of their work usually make a detailed evaluation of the accuracy and effectiveness of cost records, since these form an important constituent of internal control systems. In this climate, it would be difficult to convince company managements that cost audits “add value at the firm level and at the macro level”. If anything, cost audits would only lead to avoidable replication of work and an increase in compliance costs for companies without tangible value addition.
Srijit Basu Kolkata
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