Till date we are asking for our rights but now the time has come to let the world know that what this profession of COST ACCOUNTING and COST AUDIT has been doing for the Indian economy. The time has come to raise the values and the benefits the COST AUDIT and COST ACCOUNTING profession provides to the Indian economy. The recent draft of the Cost Audit rules and regulations have abolished cost audit across all prime industries. I am going to explicitly cover the areas where cost audit have been abolished and its affect on the Indian economy in the coming days. There might be some business houses that might have supported abolishment but all these happened under the UPA-II regime. This policy have been framed under the UPA-II regime and its clearly depicts that through this new COAST AUDIT Rules and Regulation Applicability would make Indian economy to collapse over the long term. The low cost tag line of Indian economy which is the key tool of competitiveness globally is going to be lost over the long term. It’s not about the 500000 students and 65000 members but it’s for the journey of the Indian economy from an underdeveloped to a Developed economy.

I have found that many people have said that Cost Audit practice is being done by only a small number of members but we forget that there are thousands employed as cost accountants in various industries and over the past 6 decades we have been catering to the growth path of the Indian economy.

I know that every one is busy with the Indian Budget which is going to held on 10 of July 2014 but what about the budget of 2015-16 and afterwards since after the abolishment of COST AUDIT there would be no way to measure the cost associated with any business. The adverse affect of the abolishment of COST AUDIT is going to be severe on the Indian economy in the coming days. This is act which was created deliberately by the UPAII to make the situation worse for the present government. With the new cost audit rules and regulation FDI investments would be declining and further government will be losing billions of money in the form of Indirect Taxes in the long term. When the Indian economy is planning for becoming one of the fastest economies of the world the recent abolishment of COST Audit across several industries would place significant slow down for the economy.

More RBI, World Bank, Asian Development Bank, would not be able to measure and ascertain the proper costing for all these industries and hence inflation and inflow of FDI capital would decline in the coming years. Moreover by making cost audit abolished fully or partially all these industries there are other ancillary industries linked with these who will be equally damaged in the long run. I am confident that all readers would be proud to be and become a Cost Accountant. We are building the nation over the last 5 decades.

The Industries where COST AUDIT has been abolished fully or partially are as follows:

  1. Energy subsidy & Gas Price pooling- We all know that Indian economy goes through tough phase regarding management of energy subsidies. The fiscal deficit of the Indian government is primarily due to high energy subsidy. On the other hand cost audit have been abolished for gas price pooling where currently the current population of India is reeling under high gas prices. Recently the gas a price have been hiked and if cost audit where cost analysis and cost management is being used is abolished then in the near future there will be no process of cost estimation and gas prices would only increase to abnormal levels. So Indian economy and its population will face higher gas prices and high levels of subsidy burdens which will bring down the growth prospects of the Indian economy. By abolishing cost audit every industry there will be no proper costing methods and every business from this industry would follow different methods of costing and pricing of their products.
  2. Electronic products- India is now the growing hub for electronic products. FDI companies have opened up their shops of manufacturing in India since the cost of production is attractive. Now with no COST Audit for this industry would lead to no uniform method of cost estimation and prices would increase. Increased prices would lead to increase of inflation and loss for the government revenue since every industry would inflate prices and government will not be able to access the correct prices. FDI investments would decline once the prices increases and import of foreign products would turn out to be cheap. This will increase the Fiscal deficit of the Indian government in the coming days and our domestic manufactures would be unemployed down the line next 5 years.
  3. Food Processing Industry – technology up gradation, modernization, establishment, Vegetables, Fruits and Nuts, Poultry and Related Products etc- Cost audit have been abolished for these industries and hence there will be no uniform costing methods for theses industries. How RBI and the Ministry of Finance would find the prices pattern and cost pattern of these industries. More over with no cost audit being applicable for the Food Processing Industry there will be loss of government revenue since every company would discard at their own wish their plants and machineries and would establish modernization of their plans to save taxes for several years since these cost are capitalized for several years. At the end Indian government would hardly get any revenue from these industries and even the prices of the food items etc would increase and inflation would be out of control. 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 Indian food industry which presently stands at close to US$ 135 billion with a CAGR of 10 per cent is expected to touch US$ 200 billion by 2015. The food processing industry in India attracted foreign direct investments (FDI) worth US$ 5,793.95 million during the period April 2000–March 2014, according to data published by Department of Industrial Policy and Promotion (DIPP). After cost audit is being abolished how RBI will measure the real price hikes and its causes. Moreover imported plant and machinery would be used for technological up gradation which would increase the fiscal deficit of the Indian government. Moreover domestic plant and machinery manufactures would be closing down their business since no records of proper cost audit is being maintained.
  4. White good (domestic refrigerators, domestic dishwashing machines- Well prices of these products would increase and down the line with no proper cost audit and costing methods FDI investments in India would decline slowly. After abolishment of cost audit for this industry pricing of raw material and ancillary industries prices would also increase which would make price of the products expensive in term of domestic production. Then we would find later on that imports of these products are being made in India and domestic manufactures are unemployed.
  5. Water supply and sanitation, Social welfare and nutrition, Urban Development, Family welfare- These are industries where government spends its tax payers money for the development of the society and also of the economy. This is another industry where India gets huge billions of money from WORLD BANK & Asian Development Bank. Now if their no cost audit and costing methods for these industries and segment will WORLD BANK and Asian Development Bank would provide funds. Moreover how government would measure the proper utilization of funds and results there to. If cost audit is abolished then high level of inefficient resources and funds will be practiced and government would not be able to measure and detect the same. Hence cost audit is highly required for such industries.
  6. Component parts and accessories of automobiles India is the growing hub of small car manufacturers. FDI investments have been ruling the Indian markets over the last decade. 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, as per data published by Department of Industrial Policy and Promotion (DIPP), Government of India. The Indian auto component industry is estimated to have a US$ 66 billion turnover by 2015–16 and is expected to grow at a 14 per cent compound annual growth rate (CAGR) by 2013–2021, according to Automotive Component Manufacturers’ Association of India (ACMA) – the nodal agency for the Indian auto component industry. In addition, industry exports are estimated to reach US$ 12 billion by 2015–16. Now with abolishment of cost audit every company under this industry would adopt different methods of cost audit which would result to increase in prices and later on this industry would lose the competitiveness. FDI investments would start declining and over the next 5 years India would not be low cost Auto Component industry in India. Ancillary industries would also find an exit option from Indian market.
  7. Textile machinery & cotton and woolen textiles –India is the one of the world’s largest producers of textiles and garments. Abundant availability of raw materials such as cotton, wool, silk and jute as well as skilled workforce have made the country a sourcing hub. It is the world’s second largest producer of textiles and garments. The Indian textiles industry accounts for about 24 per cent of the world’s spindle capacity and 8 per cent of global rotor capacity. The potential size of the Indian textiles and apparel industry is expected to reach US$ 223 billion by 2021, according to a report by Technopak Advisors.  The industry (including dyed and printed) attracted foreign direct investment (FDI) worth Rs 6,710.94crore (US$ 1.11 billion) during April 2000 to February 2014. Now with the abolishment of the cost audit for this industry domestic machineries would hardly find any space and most of the machineries would be imported and the cost of the same would be capitalized over long period of time and government tax revenues from this industry would decline. Without costing how the government would assess whether a specified company would require replacements of its machineries.
  8. Information and broadcasting- The Indian information and broadcasting industry over the last 14 years –The industry has evolved over the last decade against the backdrop of shifting consumer preferences toward niche content and digital delivery platforms, growing business models, hyper-competition with the entry of local and global players, and changing regulations. The adaptation of digital media from analog broadcasting has generated business avenues for OEMs and related hardware and software partners. The Indian broadcast and cable TV industry estimated at Rs. 38,500 crore in 2011-12 is projected to grow at a CAGR of 12 percent to reach Rs. 54,720 crore by 2014. Cost Audit has been abolished after this staggering growth the industry. I have nothing to repeat that in the long term this industry would lose its competitiveness.

Well this is my first part of the damages of the various industries and of the Indian economy in the long-term through abolishment of cost audit. I am yet to cover many other industries which I would cover in the 2nd series. All I can find is that if COST AUDIT is abolished then Indian competitiveness in the Global Platform is being planned to bring down. Well be proud to be a cost accountants we are building the nation over the last 5 decades.

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.

Indraneel Sen GuptaIndraneel Sen Gupta (neel19414@gmail.com )

Global Macro Economic Researcher and Business Strategist

Master of Economics, MBA in International Business Management, ICWAI (Final)/CWM Final/Journalist

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0 responses to “Affect Of Removal of Cost Audit In Various Industries”

  1. onassisauto1 says:

    I was not able to find any proper course on internet marketing. Atlast i have found one

  2. Raj Kumar Gupta says:

    Dear Pramod

    No CWA/CMA are competent to answer your good queries becuse they are trying to hide the facts from themselves. Then how they can share with you , i am tring my best to answer you rquesres

    1. How many developed economies have statutory cost audits? Please name a few.

    No single developed economy has any kind of cost audit. forget about the developed even out of 198 countries , only Pakistan and bangladesh are having statutory cost audit and that is also limited.

    2. Is there any data regards to whether the statutory ‘cost audit’ data that was compiled by the ‘cost auditors’ so far was used by Govt agencies to meet up with the ‘objective’ that you have beautifully laid out in your article? I am talking about some stray occasions. Let’s get a sense of proportion. How many ‘audits’ Vs how many ‘actual’ uses?

    ALL Govet authority Income tax .CBI and MCA and other have full right to access any information from any companies.

    Only cost information can not be value addition.

    3. If they were indeed useful to the Govt Authorities, then were they not consulted before the Govt brought in this notification?

    All the govt authority has rights to access any information then no necessary to make cost information compulsory for agency..
    4. In any case, why is the Institute not propping up those Govt Agencies to fight this battle?

    If there is not substite for cost information ,then only govt authority can insist for cost information.

    I have no doubt that there are Corporate lobbies at work to ‘do away’ with any kind of ‘real’ control. But we need to have ‘real’ argument laid out with substantiated logic.

    Corporate are only bahaing like western economy so they can claim for ease of doing business . Logic for re-instatememt of cost audit is not valid at all as statutory cost audit is almost outdated ,though internal costing as fully endoresed by corporaate and any one.

    Further, if the most Financial Audits are fraudulent (hiding more than revealing) wherein the CAs SHOW us smart ways of evading getting caught (in the name of innovating accounting)… what makes us think that the ‘cost audits’ ever provided the ‘real-but-inconvenient’ cost data?

    Financial auidt is mere compliance and opinion making process where only limited vetting is allowed while cost audit is checking of internal function of business process by a third party who is not party to all.

    I am a ‘prospective’ CMA and I would like to be convinced.
    Please don’t mistake me as any adversary!!

    Pramod

  3. Vinay Joshi says:

    CMA.  Vijendra Sharma, CMA. Amit Apte & CA. Sandeep Kanoi,
    Greetings,

    Cost audit is a move to check unfair trade practices. Right!?
    The new Co’s Act 2013 is discussed by the esteem authors & put  to be assimilated.
    The sections effect is not stated by the respected authors’. 
    Its sec 148 of the Co’s Act 2013 which is in the context.,

    The new cost audit rules would also apply to a range of other businesses such as drugs and pharma, medical devices, telecom services, power, roads and infrastructure, sugar, fertilizers, petro products, defense products and services, railways, aeronautical services, steel, edible oil, metals and minerals, as also multi-product or multi-service companies.
    Co’s engaged in public-facing businesses like healthcare, education and construction will now have to follow a strict audit regime for their expenses as well as the cost of products and services provided by them. RIGHT!?

    The latest notification pertains to Companies (Cost Records and Audit) Rules, 2014 under section 148 of the Companies Act, 2013.

    Applicability to entities coming under the classification of being regulated by sectoral watchdogs as well as those engaged in businesses that involve public interest, the thresholds are similar. 

    It said the cost records would have to be maintained on regular basis in such manner as to facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities for every financial year on monthly or quarterly or half-yearly or annual basis. 

    To comply with the latest norms, companies would have to appoint a cost auditor within 180 days of the commencement of a financial year and the same should be informed to the Ministry within 30 days of making the appointment. 
    Co’s would also have to furnish the report with the government within 30 days of its receipt. [closure of FY]

    The requirement for cost audit would not be applicable to a company whose revenue from exports, in foreign exchange, exceeds 75 per cent of its total revenue.
    Besides, firms operating in a special economic zone are also exempted from following the cost audit norms.

    Welcoming the new cost audit norms, industry body FICCI, said the rules are in sync with the realities of the economy and its future direction through market-led growth. “It is progressive that the application of the Rules is both size and product based. There is of course room for higher, thresholds as many small companies will be captured in a growing economy,” 
    FICCI President Sidharth Birla said in a statement, July,1.

    NOW COMING TO THE ARTICLE IN CONTEXT, its not known why some ICMA members are divided & have contrarian aspects as STATED in & i’m asking specific questions  in respect of the industries named in – sec 148 applicability & ntfn.
    As stated by you, answer me, if at all!

    1] Energy & Oil —- is it not under statutory regulation?
    2 & 3] Electronics , White goods– unregulated?
    4]  Food processing – ‘Onion tears & Potato fears’, can cost audit solve it? [its unrelated] but the industry has regulation including exports .
    5] Social welfare – costs & audits WAS NEVER THERE ONLY! As any social & Charitable work [except CSR] then & now exempt. CAG comes with its reports of govt.audit.
    6,7 & 8] The threshold limits as stipulated, net worth, turnover applicable.

    Now with the above inputs – with earlier Cost Audit norms – in all the EIGHT industries stated by you – WHAT HAS BEEN THE DIFF BETWEEN COST v. SALE PRICE? NO WAY TO ESTABLISH A FAIR TRADE PRACTICE! FMCG & beverages or pharma can you explain?!

    Cost audit as self determination of costs is different from new enactments applicable.

    Regards,

  4. Nikki says:

    Hi

    Can any one tell should i go for MCA Admission or Not?

  5. Sujoy Mondal says:

    Actually MCA under pressure of other Institute and they don’t want cost audit but if you look around the world it is very clear that all world think about COST Audit exceptional INDIA. It is our tradition to back ward always.  Ultimately fair business not followed in India.

  6. G.M.NADKARNI says:

    Yes I agree with the view expressed. this is a step in the reverse direction and questions the basic existance of the Institute. Suddenly after the changes in Year 2011, how can the Govt abolish Cost Audit & related rules in almost all major industries in India? What is Govt’s view on the future of practising Cost Accountants and those employed with these industries? The no of Industries under Cost Audit/Rules is reduced to such a extent that it is almost removed. With this removal will Govt recognize Cost Accountants on par with Chartered Accountants and confirm their position as Accountant under Income Tax, Sales tax and companies Act?

  7. pramod icwai says:

    My appreciations for a well laid out argument.  Thanks.
    I am still a ‘student’ to this profession and have some basic questions.  Hope, you don’t mind answering.
    1.  How many developed economies have statutory cost audits? Please name a few.
    2.  Is there any data regards to whether the statutory ‘cost audit’ data that was compiled by the ‘cost auditors’ so far was used by Govt agencies to meet up with the ‘objective’ that you have beautifully laid out in your article?  I am talking about some stray occasions. Let’s get a sense of proportion.  How many ‘audits’ Vs how many ‘actual’ uses?
    3.  If they were indeed useful to the Govt Authorities, then were they not consulted before the Govt brought in this notification?
    4.  In any case, why is the Institute not propping up those Govt Agencies to fight this battle?

    I have no doubt that there are Corporate lobbies at work to ‘do away’ with any kind of ‘real’ control.  But we need to have ‘real’ argument laid out with substantiated logic.

    Further, if the most Financial Audits are fraudulent (hiding more than revealing) wherein the CAs SHOW us smart ways of evading getting caught (in the name of innovating accounting)… what makes us think that the ‘cost audits’ ever provided the ‘real-but-inconvenient’ cost data?

    I am a ‘prospective’ CMA and I would like to be convinced.
    Please don’t mistake me as any adversary!!

    Pramod

  8. Satish says:

    Inraneel Ji… Great Article by you and your colleagues… Further MCA should learn from this article “what is Cost Audit and its benefits” to industries.

  9. Arindam Nath says:

    Great work done Mr. Sengupta. Keep it up.

  10. Kamlesh says:

    Hi Indraneel,
    Thanks for the update.
    We understand that MCA postpone the implementation of new rules and continue with the earlier notified rules.
    What you expect from this move of the MCA. Is there any hope for good news in the coming days.

  11. jaimin mehta says:

    I understand compulsory cost audit is sought to be done away with. Does this imply voluntary cost audit will not be done ? 

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