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INTERPRETATION OF COST AUDIT REPORT, 2011. Presentation by: RACTISING COST ACCOUNTANT. COMPARISON BETWEEN OLD AND NEW RULES. …COMPARISON BETWEEN OLD AND NEW RULES. …COMPARISON BETWEEN OLD AND NEW RULES. …COMPARISON BETWEEN OLD AND NEW RULES. …COMPARISON BETWEEN OLD AND NEW RULES.
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INTERPRETATION OF COST AUDIT REPORT, 2011 Presentation by: RACTISING COST ACCOUNTANT
PARA 1-11 – INTERPRETATION OF VARIOUS PARAS Form I For e-filing on MCA Website • It contains only general information; no figures are required to be filled up. • It should not contain Form III - PAR (That is to be submitted to the company only).
Form II Cost Audit Report and Certificate by Auditors • Obtain a certificate from the management on the following: • Compliance with the CAS and GACAP. • Form II cannot be modified except for PRA
Form II Cost Audit Report and Certificate by Auditors • Compliance with the CAS and GACAP. • Internal Audit of Cost Records. • Note on Budgetary Control System. • Form II cannot be modified except for the PARA 2 for the observations and suggestions of the Cost Auditors.
…Para 11 SINGNATURE SINGNATURESINGNATURE NAME NAMENAME COST AUDITOR (S) COMPANY SECRETARY/DIRECTOR DIRECTOR MEMBERSHIP NO. MEMBERSHIP/DIN NUMBER DIN NUMBER SEAL STAMP STAMP DATE DATEDATE Notes: (1) Wherever, there is any significant variation in the current year's figure over the previous year's figure for any item shown under each para of the Annexure to the Cost Audit Report, reasons thereof shall be given by the Cost Auditor. (2) Wherever, duration of the current year or the previous year is not 12(twelve) months, same shall be clearly indicated in the Report.
Form III- PAR Name of Company: _______________________ Period of Report: ______________ (indicative list of areas to be covered in the report) 1. Capacity Utilization Analysis 2. Productivity/Efficiency Analysis 3. Utilities/Energy Efficiency Analysis 4. Key-Costs & Contribution Analysis 5. Product/Service Profitability Analysis 6. Market/Customer Profitability Analysis 7. Working Capital & Inventory Management Analysis 8. Manpower Analysis
…Form III- PAR 9. Impact of IFRS on the Cost Structure, Cash-Flows and Profitability 10. Application of Management Accounting Tools Date: ____________ Signature of the Cost Auditor(s) Place: ____________ Membership Number(s) Notes: 1. Areas included in this form are indicative; these are to be included/excluded depending upon the size/scale and type of operations, nature of the industry, management requirements, etc. 2. Frequency of this report viz. half yearly/annual to be decided by the Company Management.
How to conduct Cost Audit effectively ? The effective way of conducting the cost audit is by way of dividing this activity in following 4 stages or phases. Stage:1 Pre-Cost audit preparation • Study Annual Report copy of the previous year. This will also give a bird’s eye view about management, line of business, and other activities. • Get a profile of the company, with number of factories, offices, branches, depots etc. • To study system & procedure visit various factories & their production department and collect a note on process of manufacture & flow chart. • In new industry, involve as an associate/ staff who has experience in that industry. This will help to pick up special features of that industry. • To discuss schedule of annual closing of accounts & try to get prepared on similar line, schedule for completion of cost records & cost audit.
Stage: 2Conducting Cost Audit – Areas to be covered before the close of the year. • Visit to various departments to understand, review & test check the basic records of the departments such as stores, production, Finance, Costing etc. To understand: • Existing internal costing system and MIS system, defining cost centres, • System and basis for allocation, and apportionment of various cost elements, various cost centres. • To carry out trend analysis of various cost & technical parameters – monthly to yearly to understand cause for variations in various parameters.
Stage 3Conducting Cost Audit – Areas to be covered after the close of the year When cost records are getting finalized, to carry out simultaneous audit of following aspects, as & when these records are ready. • Reconciliation statement in terms of quantity & value. • Apportionment of cost of various service cost centers to production cost centers. • Application/ absorption of factory overheads, administration overheads, Selling & Distribution overheads & Interest to various products. • Product-wise sales & margin analysis – quantity & value (net of Government levies). • While finalizing the Cost Audit for the current year, we should check plus/minus 10% variation in cost versus previous year in following areas – • Item-wise unit cost of Raw Material & Packing Material for major items. • Cost centre wise conversion cost per unit • Product wise per unit cost, sales & margin • To draw a conclusion about compliance with CAS and GACAP by the company.
Stage 4Preparation for Audit Committee Meeting • The Audit Committee meeting is very critical as the interaction with the Stake holders is during this meeting. • Drafting of conclusion for Form III – Performance Appraisal Report, based on the information received from the company. • Discussion on Form II – Cost Audit Report & Form III – Performance Appraisal Report with management. • To assist the management in preparation of the Executive Summary of Cost Audit Report for presenting to the Audit Committee.
