EXECUTIVE SUMMARY

Cost Audit is the verification of cost accounts and checking that cost accounting plan to ensure efficiency and effectiveness of operation. This is an audit of efficiency that deals with expenditure, while the work is in progress. The cost audit is synonymous with efficiency audit as it seeks to ensure optimum return of investment and proper distribution of investment in different functions and aspects like products and programmers of the organization to optimum results. Cost audit also emphasizes propriety audit as it seeks to bring out the cases where funds have been used in negligent or inefficient manner and the factors which could have been controlled but have not been done resulting in increase in the cost of production or service rendered. So it is an audit process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilization of material or labor or other items of costs, maintained by the company. Cost accounting was first introduced in India in the defense undertakings in 1920¶s. Cost Accounting and audit of Cost Accounts can be traced back as early as 1925 when a large number of firms were given contracts by the Government of India on ³cost plus´ basis and the Government started verifying and investigating the cost structure of such firms. The Institute of Cost and Works Accounts of India (ICWAI) was in 1944 as a company under the India¶s companies Act. The Pakistan Institute Of Individual Accountant (PIIA) was registered in 1952 and was finally recognized by an act of parliament in 1966.A branch of PIIA was set up in Dhaka in 1961.After the independence of Bangladesh the then branch of PIIA turned into an Independent Institute ³Bangladesh Institute of Industrial accounts (BIIA)´ in the year 1972 which was later renamed as ³The Institute of Cost and Management Accountants of Bangladesh (ICMAB)´ in 1977 under the act of parliament of the govt.

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Prepared by Manik Royand others, University of Dhaka

PROBLEM STATEMENT
Cost audit is maintained and performed by following Companies Act 1994, Cost Audit(Report) Rules,1997, Government Notification, CMA Ordinance, 1977 (Ordinance no LIII of 1977) but these are not clearly stated. The cost audit information is not available in published financial statement and is not disclosed to unauthorized persons. We are afraid under the exiting legal provisions it is impossible to work in on objectives and independent manner. Under the legal provision the danger of compromise is always there as the cost auditor is unlikely to be able to work independently.The board of directors of the company shall appoint the cost auditor within 30 days of each financial year upon written instruction from the government. In this case the board shall also determine the appropriate audit fee. At the end of the audit, the cost auditor shall submit the cost audit report to the board of directors together with a copy to the government. Thus, we see that under the existing provisions cost auditor would be appointed by the management, together with determination of his fees, and he would be asked to report back to the management on the finding audit.

RESEARCH OBJECTIVES:
The principal intention of the projected study is to recognize the compliance of rules and regulation of cost audit and application of these rules in specified industry notified by the government in Bangladesh. To achieve this objective, the specific objectives are: 

Understanding the legal provisions regarding cost audit.  Compare rules and regulations with practical  Understanding the attitude of companies regarding cost audit.  Evaluate the awareness level of the companies.  Evaluate rules and regulation regarding cost audit is suitable accordance with current industrial requirements.  Evaluate whether cost audit objectives accomplish successfully.  Examining the main problem regarding cost audit.
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Discover the potential solution of these problems.  Recommend to overcome current and potential problems.

SIGNIFICANCES OF OUR STUDY
Our research may help to detect the areas of errors, fraud and misappropriation of accounting records that reduce the inefficiency of the performance of the company. It may help the management, shareholders, government, customers and cost accountants by the following ways:  Cost audit detects errors, frauds and misappropriation and hence enhances efficiency. Companies become more cautious about keeping cost data, in case where cost audits were mandatory.  Cost audits conducted by external auditors detect the standard of efficiency of management; hence it helps in the improvement of the standard of utilization of material, labor and other resources.  For the government: it helps in accurately determining costs of production. Thus costs audit help govt. to take prudent decisions whether a particular industry/sector needs tariff protection. It also helps the government to settle those cost-plus contracts entered into by the government without any complications. VAT authority of the government can determine proper value added tax liability and hence detect evasion if cost audit is done rigorously.  Customers may buy products at the most competitive price due to effective cost control and cost reduction as a result of a cost audit.  Cost Accountants, who work as employees in the audited firms, can enjoy a share of all benefits derived by the company from a cost audit.

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LITERATURE REVIEW
Our study is closely based upon the review of different books and research findings and suggestions of various committees/sub-committees ser up by the govt. and institution which is closely connected with cost audit. Review of the important literatures help us to assess and understand the existing problem and prompts and strengthens to approaches to the problem. Rubel Ameen, FCMA conducted a study ³Social objective of cost audit´ on various aspects like nature, definition, purpose, aspects, structure, dimension, origin, and magnitudes of the cost audit in Bangladesh. He further discussed about cost audit and its social objectives, elimination of the limitation of Conventional Balance Sheets, cost audit in public sectors, creation of cost consciousness, better management of working capital, verification and valuation of inventories, inter firm comparison etc that help us to conduct our study and prompts and strengthens to assess approaches to the problem. Professor Syed Mohammad Ather, FCMA and Md Hafij Ullah also conducted a study focusing purpose, application and advantages of cost audit for the incumbent organizations and also for others interests groups. Robert Williams, (1978) "THE COST AUDIT: Cost factors and their reduction", Robert Williams outlined a model cost audit of a distribution system. He also demonstrates how such a cost audit can identify the major factors affecting costs, and makes some practical suggestions towards their reduction. Robert Williams, (1978) "THE COST AUDIT: A tool for distribution management" Robert Williams has developed costing techniques for distribution in the food and grocery trade which provide a pattern for any company to conduct a thorough cost audit in order to make an appraisal of its distribution performance in warehousing and transport. Robert Williams delivered an extended version of the this research paper to a recent conference of the Institute of Practitioners in Work Study, Organization and Methods, giving an outline of the Centre's approach to costing, the order of costs and typical performance levels which they found. In this research paper he
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tried to identify the main factors affecting cost, and make some practical suggestions for their reduction. Syed Jamil Ahmed Rizivi, FCMA made a study to identify areas of weakness invisible loss and unaccounted inefficiencies which ultimately result in adverse effects on the financial health of the organization.

RESEARCH QUESTIONS
RESEARCH QUESTIONS TO EXPERT
1. 2. 3. 3. 4. 5. 6. Do you think cost audit is a social audit? Do you think cost audit need to impose mandatory for every organization? Punishment for breaking cost audit rules and regulations is very simple. Do you agree to it? What should it be? What is purpose of the punishment? Is there any difference in practical between internal audit and statutory cost audit? Do you think cost audit as only approach for reducing cost in an organization? Do you think code of ethics is proper followed by the cost auditors?

RESEARCH QUESTIONS TO MANAGEMENT
7. 8. 9. Is there any difference in practical between internal audit and statutory cost audit? Do you think cost audit as only approach for reducing cost in an organization? Do you think code of ethics is proper followed by the cost auditors?

10. Cost auditor should be independent. Will it be beneficial for every organization? 11. Do you think cost audit is better for managing working capital? 12. Does cost audit ensure authentication of cost accounting statement? 13. Suggestions may be available but implementation is complicated. How you view this? 14. According to the definition of the company under companies¶ act 1994 almost all companies come under the cost audit umbrella but 68 companies need to perform cost audit compulsory. What are reasons behind this? 15. Are you following cost audit? 16. Benefits are greater than cost in implementing cost audit. Do you think do so?
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17. What are the major problems that you face after implementing cost audit? 18. Cost audit increase your efficiency and overall performance. What is our judgment? 19. What kind of fees can and will be incurred, and how will it affect the company going public? 20. What types of suggestions cost auditor given to you? 21. How you evaluative cost audit report? 22. What are the basic principles of cost audit? 23. What you do after the audit? 24. How your management involve in cost audit? 25. Despite the relative high cost of audit, would you as a manager of a company agree to an independent audit? 26. Cost audit report and its uses for the organization?

METHODOLOGY
The company Act, 1994 section 220 contains provisions under which the government of Bangladesh may, by order, direct an audit of cost accounts be conducted of the company by a Cost and Management Accountant. This cost audit (of the cost accounting books) is to be conducted every year and shall be in addition to the statutory audit of accounts conducted under section 210. Cost auditing function is administrated and facilitated by the cost audit (Report) rules, 1997, Order of the Government for cost audit, CMA Ordinance, 1977(Ordinance No. LIII of 1977), CMA Regulations,1980 and subsequent amendments. Already, the government promulgated statutory notifications making cost audit mandatory in the public sector sugar mills and public limited companies in fertilizer, textile, fuel, pharmaceutical, jute sectors and edible oil and ghee(The Daily star, 20th August , 2004; GOB, 2005). Cost Audit is mandatory in three industries like  In nationalized industries especially in the national sugar mills.  5 listed companies in the fuel and power sector.  6 enlisted companies in jute sector.
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We will collect data from these listed industries specified above under sampling basis and we also interview several faculty and expert.

DATA COLLECTION
At first we would like to consult with expert like our faculty members and CMA qualified person and try to recognize the current prospects of cost audit through our established questions paper. We shall also try to go through the various publications produced by the firms and institutions annually and semiannually. We shall also try to focus on the important rules and regulations imposed by cost audit (report) rules 1997, Companies Act 1994, Order of the Government for cost audit, CMA Ordinance, 1997(Ordinance no LIII of 1977). We will also take interviews of managements of the Companies.

DATA MANAGEMENT
We collect data from expert, faculty and management through our questionnaires. After the collection of data we arrange data in sequential ways and storage in computer using appropriate software.

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Prepared by Manik Royand others, University of Dhaka

MEASUREMENT AND SCALING
Questions
Cost auditor should be independent. Will it be beneficial for every organization? Suggestions may be available but implementation is complicated. How you view this? According to the definition of the company under companies¶ act 1994 almost all companies come under the cost audit umbrella but 68 companies need to perform cost audit compulsory. What are reasons behind this? Cost audit increase your efficiency and overall performance. What is our judgment? Despite the relative high cost of audit, would you as a manager of a company agree to an independent audit?
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Positive

Strongly positive

Negative

Strongly Negative

No comment

Prepared by Manik Royand others, University of Dhaka

DESCRIPTIVE QUESTION 
Do you think cost audit is a social audit? Comment:  Do you think cost audit need to impose mandatory for every organization? Comment: 

Punishment for breaking cost audit rules and regulations is very simple. Do you agree to it? What should it be? Comment:  What is purpose of the punishment? Comment:  Is there any difference in practical between internal audit and statutory cost audit? Comment:  Do you think cost audit as only approach for reducing cost in an organization? Comment:  Do you think code of ethics is proper followed by the cost auditors? Comment:  Do you think cost audit is better for managing working capital? Comment:  Does cost audit ensure authentication of cost accounting statement? Comment:  Are you following cost audit? Comment:
Prepared by Manik Royand others, University of Dhaka

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What are the major problems that you face after implementing cost audit? Comment:  What kind of fees can and will be incurred, and how will it affect the company going public? Comment:  What types of suggestions cost auditor given to you? Comment:  How you evaluative cost audit report? Comment:  What are the basic principles of cost audit? Comment:  What you do after the audit? Comment:  How your management involve in cost audit? Comment:  Cost audit report and its uses for the organization? Comment:

DATA ANALYSIS
The collected data analyzed manually and using computer software. We done all on based on our survey objectives. We try to collect opinions from expert and relevant management through our questionnaires and reason for their opinions.

WORK PLAN:
Activities 1.Planning and introductory work 2.Distribution of work 3.literature review 4.Preparation of Questionnaires 5.Interview and collection of secondary data Required days 1 1 2 2 3

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6.Data processing 7.Data Analysis 8.Preparing draft report 9.Meeting among ourselves 10.Finalisation the report 11. Print and submit the report Total time BUDGET Budgeted costs for our research have been determined on
market price of the items. Cost items 1. Questionnaire printing 2. Project proposal preparation and printing 2. Paper, pencil, pen and eraser 3. Internet service 4. Report printing and mailing 5. Report binding 6. Conveyance: 7. Photocopy 8. Literature review 9. Miscellaneous Total

2 2 1 1 1 1 17 days
the basis of the present

Amount required (BDT) 100 Tk. 250 Tk. 300 Tk. 400 Tk. 350 Tk. 200 Tk. 1000 Tk. 100 Tk. 300 Tk. 500Tk. 3500Tk.

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Prepared by Manik Royand others, University of Dhaka

SAMPLING
We will try to collect data based on non-probability sampling. It is very convenience and easy to understand. This often introduces an important type of error: self selection error. This error sometimes makes it unlikely that the sample will accurately represent the broader population. We will collect data by following:  Two nationalized sugar companies, one fuel and power companies and two jute companies  Two expert¶s recommendation.

LIMITATIONS OF THE STUDY:
Everything faces little or more unfavorable situation that decline the performance of that. This is limitation. We also face some limitation to conduct our study. Like  Efforts will be made to accomplish the study according to the objectives. But as the research team consists of only few members and they are scattered that had made difficult to cover in details.  We get only a few days after vacation for our research. Due to this time limitations many aspect may not be discussed in the present study.  Due to time constraints, the sample size is limited to only 5.  The cost audit information is not available in published financial statement and is not disclosed to unauthorized persons.  Confidentiality of data is another important barrier that may be faced during the conduct of the study. Every organization has their own secrecy that is not revealed to others.
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Necessary records, publication may not be available. This constraint may narrow the scope of the study.  Rules and regulations regarding cost audit are not clearly described.

REFERENCES:
Banerjee,K.(2009), Mandatory cost audit:Do we need it?International seminar on cost AuditAn Effective Tool of Corporate Governance, organized by the Institute of cost and Management Accountants of Bangladesh(ICMAB)in Dhaka ,May10,2009. Chatterjee,B. & Zaman,M.M.,(2006),The role of mandatory cost audit in enhancing trust:The case of India, Qualitative Research in Accounting &Management,Volume3,Number1,ISSN 1176-6093, pp.27-45. Gupta,k(2001) contemporary Auditing,Tata MCGraw Hill Publishing Company,Fifth

Edition,7West Patel Nagar,New Delhi 110008,ISBN 0-07-463152-7. Oxford (2006), Oxford Dictionary of Business, Oxford University Press,New Delhi,ISBN:0-19566905-3, Third Edition,pp271-309. Rashid,M.A.(2009)An evaluation of status of keeping and naintaining cost accounting books as well as the status of implementation of cost audit in concerned industries in Bangaladesh,The Cost&Management, 5090,PP,23-25. Saeed,K.a92003),Advanced Auditing,institute of Business management,Lahor, G.P.O.Box No.1164,p.460. Sen,D.K.,Jain, S.C.,and Bala,S.K.(2002),Cost&Management Accounting in the new millennium and Opportunities, The Management Accountant,ICWAI,India,Augest,pp.569-575.
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VolumeXXXVII,

Number6,November-December,2009,ISSN

1817-

Sddiqui,F.(2000),Cost Audit in Manufacturing Sector,Fnance &Markets

Prepared by Manik Royand others, University of Dhaka

Tendon,B.N.,Sudharsanam,S.and Sundharabahu,S.(2002),A HandBook of Practical Auditing,S. Chand&Company Ltd.,Ram Nagar, New Delhi-110055,pp.434&458. Traiquzzaman,ATM,Yusuf,M.A.,Yasmin,S.,(2009),Mandatory Cost Auditing in Bangladesh: Some policy options, The Cost &Management,January-february,2009,ISSN 1817-5090,PP-29.

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Prepared by Manik Royand others, University of Dhaka

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