Removal of Cost Audit and Methods Would Catastrophic For Indian Economy

In my previous article titled –Affect Of Removal of Cost Audit In Various Industries, I got couple of queries about the value of cost audit and cost methods compared to financial audit. Well I am not inclined to get into the long debate but only thing I would clarify if I don’t develop uniform costing methods then how different companies under on industry will formulate its pricing and costing. Moreover with the absence of costing methods, how you will a company will justify the pricing mechanism and its risk taking capability. If you don’t know what is opportunity costing and decision based costing models how a company will accept risk and would be able to measure to risk. NPV,IRR and the entire gamut of Financial Management has been derived from Cost Management. You are free to abolish cost audit and costing methods but how will you justify your foot print in the global market where cost audit and costing is highly valued. Next I find that few friends have found that only the part of cost audit practicing members would be affected and not the ones who are doing services. We’ll try to understand that if COST AUDIT & COSTING METHODS gets abolished why companies would recruit cost accountants and cost auditors in their company. The current situation is so pathetic that 500000 students and all the members and non members employed will be jobless within a year’s time frame depending upon the present Draft Guidelines.

Coming back to the industries which are abolished for COST AUDIT and COSTING METHODS applicability are as follows.

1. Engineering Machinery including electrical and electronic products-Engineering is by far the largest segment in the Indian industry. It is a diverse industry with a number of segments, and can be broadly categorised into two segments, namely, heavy engineering and light engineering. Engineering research & design (ER&D) revenues are projected to increase to US$ 45 billion in 2020 from US$ 11.2 billion in 2012. The turnover of engineering services firms is also likely to touch US$ 37 billion by 2020.
2. Engineering exports from the country stood at US$ 61.61 billion in 2013–14, registering a growth of 8.49 per cent compared to the previous year. During April 2014, the overseas sales of engineering products rose 21.3 per cent to US$ 5.7 billion. The foreign direct investment (FDI) inflows in miscellaneous mechanical and engineering industries during April 2000 to March 2014 stood at US$ 2,606.83 million, as per data released by Department of Industrial Policy and Promotion (DIPP). Now after the removal of cost Audit and costing methods how the nano technology based engineering would grow. How engineering companies would develop the research aspect where nano technology based on price and cost is the prime focus. If no uniform costing method is followed how the companies would develop nano based engineering.

3. Automobile Industry–India represents one of the world’s largest car markets. The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 to January 2014 was recorded at US$ 9,344 million, an increase of 4 per cent to the total FDI inflows in terms of US$, according to data published by Department of Industrial Policy and Promotion (DIPP), Government of India. The overall automobile exports grew by 6.39 per cent during April–February 2014. Several global and Indian bike makers plan to utilise India’s mass production base of 16 million two wheelers to roll out sports bikes in the 250cc capacity. Now with the removal of costing methods and cost audit these companies would obviously follow different methods of costing and soon will make windfall profits. But once the price becomes equal to the imported prices these companies would windup their business.
4. Milk and Milk Products, Packaged Food Products-India is the world’s second largest producer of food with the potential of being the biggest, backed by its food and agricultural sector. The food processing industry is one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth.  The food processing industry in India attracted foreign direct investments (FDI) worth US$ 5,793.95 million during the period April 2000–March 2014.Removal of cost audit and costing methods would spook improper prices and inflation would shoot up. Can anyone explain how RBIO will capture the cost appreciation and how they will control the prices if they don’t know about costing.

It seems that if cost audit and costing methods are removed then a it would be very easy for countries like China, US and UK to dump their goods in the Indian markets. Since without any proper costing mechanism, a time will come when everyone would start adopting different costing methods to save taxes and resulting increase of prices to make windfall profit. When prices of domestic products would increase then imported products prices would be less compared to the domestic ones and hence dumping of goods would happen in India. Slowly the foreign reserves of the country would deplete in the long run and fiscal deficit of India would increase. By removing cost audit and costing methods, India in the long term will no longer be in the race of global competitive market. I find that through this removal the broader picture is that many countries don’t want India to grow and hence the best way is to eradicate the cost competitiveness of Indian economy. Those who have planned for the removal of cost audit and costing methods their target is to destroy the Indian markets in the long run and let foreign players sell their product in India and exploit the resources of Indian economy. If cost audit & costing methods are removed then down the line next 5 to 10 years India would be like US where made in china goods are being sold replacing the same US based companies. In simple words Indian companies would exit India and would manufacture in other economies and sell the same goods through import in India. The master plan is quite dangerous.

A special thanks to CMA Vijendra Sharma and CMA Amit Apte for their support and inputs on the same. Without their help I should not have been able to write the same.