Taking up cudgels on behalf of corporate India, the Confederation of Indian Industry (CII) has expressed itself against making maintenance of cost records mandatory as suggested by the parliamentary standing committee that has studied the Companies Bill 2009.
The parliamentary standing committee on finance under the chairmanship of Mr Yashwant Sinha, in its report presented in August this year, has proposed coverage of corporate sector for mandatory maintenance of cost records. Further, in the context of administered price mechanism, the committee emphasises that the Central government should retain the power to institute cost audit in larger companies, whenever circumstances so warrant, particularly in sectors concerning exploration, mining, processing, manufacturing, infrastructure and utilities.
The committee, while prescribing this, noted that the Irani Committee (2005) had felt that maintenance of cost records should not be made mandatory. The Irani Committee had taken the view that while the enabling provision may be retained in the law, providing powers to the government to order cost audit, legislative guidance has to take into account the role of management in addressing cost management issues in context of the liberalised business and economic environment.
CII said it endorsed these views of the Irani Committee. It feels that there is no reason to mandate cost consciousness in today’s world. Companies that are not cost conscious in today’s competitive environment run the serious risk of becoming extinct. When cost record maintenance rules were introduced during the licensing regime a few decades back, they might have served a different purpose, CII said.
They may still be useful where issues of government subsidies are involved, but mandating cost audit for companies operating in free markets under fierce competition is clearly uncalled for and anachronistic, CII argued.
Competition necessitates regular exudation of pricing strategies. Cost audit results in the present set-up do not yield useful results for a company; it is more of a postmortem exercise with no practical utility since costing and pricing are dynamic matters, and hence, require prompt strategic measures on a continual basis, CII said. This has made cost audit lose its relevance as a service tool to management and guide to future policies.
