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Introduction

Cost audit is the independent audit of cost records maintained by companies. The
concept of cost audit was introduced in 1965 when Companies Act, 1956 was
amended to incorporate the provisions relating to the maintenance of cost accounting
records and cost audit. Cost audit got an impetus in 2011 when its scope was
expanded and the rules and reporting formats were simplified to address industry
concern of confidentiality.
India is the first country in the world to introduce the provisions of compulsory
maintenance of the cost accounting records and audit thereof. Cost audit can offer
valuable assistance to the management in its decision making process, since it
ensures reliable cost accounting data and information.
Concept of Cost Audit
According to the Institute of Cost and Management Accountants of England, cost
audit represents the verification of cost accounts and a check on the adherence to
cost accounting plan. Cost audit, therefore, comprises:
(a) Verification of the cost accounting records such as the accuracy of the cost
accounts, cost reports, cost statements, cost data and costing techniques, and
(b) Examination of these records to ensure that they adhere to the cost accounting
principles, plans, procedures and objectives.
Smith and Day in their book Advanced Cost Accountancy define it By the term
cost audit is meant the detailed checking of the costing system, technique and
accounts to verify their correctness and to ensure adherence to the objective of cost
accountancy
It, therefore, means that the cost auditors attention and approach should be to see that
the cost accounting plan is in consonance with the objectives set by the organisation
and the system of accounting is geared towards the attainment of the objectives. The
management will be in a position to know what price is to be fixed for a product,
whether the wastages are avoidable, whether to re-organise purchase or sales or
inventory systems to make the work more efficient and so on.

Scope of Cost Audit


Cost audit covers the following areas:
Materials
Wages
Overheads
Others
The scope of cost audit includes two important aspects viz.
Propriety Audit: is concerned with actions and plans of management which is after
the finance and expenditure of the business. The cost auditor is required to ensure
that an item of expenditure is sanctioned or approved by the competent authority. It is
done with the help of documents and vouchers. The auditor has to see that the
expenditure is proper and reasonable.
Efficiency Audit: is concerned with evaluation of performance. It verifies that the
expenditure incurred and the results obtained have been as per plan. It ensures that
every rupee invested gives optimum return.
Difference between Financial Audit and Cost Audit
The difference between financial audit and cost audit is laid down below:
Sr. No
Financial Audit
1
Statutory compulsory under
Companies Act
2
Covers all the financial
transactions recorded in financial
books
3
Aims to examine that the business
transactions have been recorded
correctly
4
Concerned with past and
historical in nature
5
Reporting the true and fair view
of the companys earnings and
state of affairs to everyone

Cost Audit
Not compulsory except in special
cases provided u/s 233B
Covers only cost records and
accounts
Aims to verify cost accounts

Concerned with forward looking


approach
Required to report to the management
except statutory audit

Objectives of Cost Audit


In order to understand the objective of cost audit, one must consider the
circumstances under which the Central Government thought it necessary to introduce
Cost Audit. The Government of India took powers u/s 233-B of the Companies Act,
to direct cost audit of cost accounts as and when it considered necessary.
The Estimates Committee of the Government of India asserted that there is a growing
need to recognize the significance of cost accounting in the industry. Further, the
Vivian Bose Commission and the Daftry-Shastry Committee explicitly pointed out
that the provisions of the company law relating to the disclosure of accounting
information and the financial accounting & audit were not adequate to serve the
intended purpose of communicating to the shareholders the way their money is being
managed. Thus, the Company Law Board thought it best to introduce financial
discipline in the corporate sector by making cost audit compulsory and provide
reliable and authentic cost and financial data; thereby India has the honour of being
the first country in the world to make cost audit a statutory obligation.
The objects of cost audit can be stated as under:
From the point of view of Government:
To determine whether any particular industry should be given any prize or
subsidy in order to encourage, develop and expand that industry. A reasonable
price needs to be fixed from the point of view of the investors, producers and
the consumers. Moreover, in order to increase export of goods so as to earn
foreign exchange, it is important that goods must be reasonably price to
compete in world markets.
To decide whether differential pricing within the industry is advisable.
To decide whether a particular concern requires protection.
Similarly, to the help the Tariff Board to consider the extension or removal of
protection already given.
To enable comparison of cost between two industrial concerns engaged in the
production of similar goods.
To ensure the accuracy of the cost accounts in case of Cost Plus Percentage
Contracts to be signed between the Government and the manufacturers.
To minimize the cost of essential commodities.
To determine the selling price so as to protect consumers interest.
To prevent wastages and unnecessary expenditures as well as resources by the
producers.
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To detect the fraudulent intentions of the management.


To make decisions regarding the excise duty and other applicable taxes on
finished goods.
From the point of view of Manufacturers:
To assist the management to regulate production.
To help the management to satisfy the shareholders and investors by earning
profits.
To help the management in reducing working costs and wastages.
To enable the management to maximise production and reduce the cost.
To find out and compare the profitability of different units of the industrial
concern.
To enable price fixation in order to submit tenders that are most competitive.
To avoid leakages of the resources of the concern and to prevent thefts, fraud
and negligence.
To determine the effectiveness of cost control techniques.
To enable proper evaluation of inventory and work in progress.
To adopt internal control and check.
To pinpoint the responsibility of the individual or of the management wherever
inefficiency is found so as to rectify the same.
To furnish up-to-date information.
To find out the proper valuation of work-in-progress and the closing stock.
Functions of Cost Audit
The functions of cost audit are summarized as follows:
To establish the accuracy of costing data. This is done by verifying the
arithmetical accuracy of cost accounting entries in the books of accounts.
To ensure that cost accounting principles are governed by the management
objectives and these are strictly adhered in preparing cost accounts.
To ensure that cost accounts are correct and also to detect errors, frauds and
wrong practice in the existing system.
To check up general working of the costing department of the organization
and to make suggestions for improvement.
To help the management in taking correct decisions on certain important
matters i.e. to determine the actual cost of production when the goods are
ready.
To reduce the amount of detailed checking by the external auditor if effective
internal cost audit system is in operation.
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Apart from the aforesaid functions of cost audit, the additional functions of cost audit
include:
Price fixation: The need for fixation of retention prices in the case of materials of
national importance, like steel, cement etc. may be useful in knowing the true cost of
production.
Cost variation within the industry: Where the cost of production varies significantly
from unit to unit in the same industry, cost audit may be necessary to find the reasons
for such differences.
Inefficient management: Where a factory is run inefficiently and uneconomically,
institution of cost audit may be necessary. It may be particularly useful for the
Government before it takes over any unit.
Tax-assessment: Where a duty or tax is levied on products based on cost of
production, the levying authorities may ask for cost audit to determine the correct
cost of production.
Trade disputes: Cost audit may be useful in settling trade disputes about claim for
higher wages, bonus, etc.
Types of Cost Audit
The different types of cost audit that we come across may be the following:
(a) Cost audit on behalf of the management: The principal object of this audit is to
see that the cost data placed before the management are verified and reliable and
they are prepared in such detail as will serve the purpose of the management in
taking appropriate decisions. The detailed objectives include:
Establishing the accuracy of the costing data, as for example, cost of material
used allocation of wages into direct and indirect and on different products,
functions and cost centres.
Ensuring that the objectives of cost accounting are being achieved through
appropriate collection, segregation, analysis and compilation of data.
Ascertaining abnormal losses and gains along with the relevant causes,
expressed in financial terms in a manner that the person responsible for such
loss or gain is identified.
Determination of the unit cost of production in a precise but practicable
manner.
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Establishing proper overhead rates for absorption of overheads by various


units of costs so that the cost is properly ascertained and there is no significant
over or under recovery of expenses.
Fixation of contract price and the determination of the additional or
supplementary charge that can be raised against customers for alterations, etc.
Improving the quality of cost accounting system by obtaining the audit
observations and suggestions of cost auditor.
(b) Cost audit on behalf of a customer: In case of cost plus contracts, often the buyer
or the contractee insists on a cost audit to satisfy him about the correct
ascertainment of cost.
More often than not, the provision, for a cost audit in such a circumstance is put
in the relevant contract with the stipulation that the supplier or the contractor will
extend all co-operations to the cost auditor. The cost of production arrived at for
this purpose may differ from the cost of production ascertained for internal
purposes.
(c) Cost audit on behalf of Government: Sometimes, government is approached
with requests for subsidies, protection, etc. Before taking a decision the
government may prefer to have the cost of production of the product determined
on the basis of cost audit to satisfy itself whether the need is genuine or the
industry seeking assistance is generally efficiently run. The government, of its
own also may initiate cost audit, in public interest to establish the fair price of
any product.
(d) Cost audit by trade association: Where activities of a trade association include
maintenance of a price of the products manufactured by the member units or
where there is pooling or contribution arrangements, the trade association may
require the accuracy of costing information submitted by the member-units
checked. The trade association may seek full information on the costing system,
level of efficiency, utilisation of capacity, etc.
(e) Statutory cost audit: This is covered by the provisions of Section 233B of the
Companies Act.
Advantages of Cost Audit

Cost audit will prove to be useful to the management, consumers, shareholders and
the government. The advantages are as under:
(a) To management:
Management will get reliable data for its day-to-day operations like price
fixing, control, decision-making, etc.
A close and continuous check on all wastages will be kept through a proper
system of reporting to management.
Inefficiencies in the working of the company will be brought to light to
facilitate corrective action.
Management by exception becomes possible through allocation of
responsibilities to individual managers.
The system of budgetary control and standard costing will be greatly
facilitated.
A reliable check on the valuation of closing stock and work-in-progress can be
established.
It helps in the detection of errors and fraud.
(b) To consumers:
Cost audit is often introduced for the purpose of fixation of prices. The prices
so fixed are based on the correct costing data and so the consumers are saved
from exploitation.
Since price increase by some industries is not allowed without proper
justification as to increase in cost of production, inflation through price hikes
can be controlled and consumers can maintain their standard of living.

(c) To shareholders:
Cost audit ensures that proper records are kept as to purchases and utilisation
of materials and expenses incurred on wages, etc. It also makes sure that the
valuation of closing stocks and work- in-progress is on a fair basis. Thus the
shareholders are assured of a fair return on their investment.
(d) To government:

Where the Government enters into a cost-plus contract, cost audit helps
government to fix the price of the contract at a reasonable level.
Cost audit helps in the fixation of ceiling prices of essential commodities and
thus undue profiteering is checked.
Cost audit enables the government to focus its attention on inefficient units.
Cost audit enables the government to decide in favour of giving protection to
certain industries.
Cost audit facilitates settlement of trade disputes brought to the government.
Cost audit and consequent management action can create a healthy
competition among the various units in an industry. This imposes an automatic
check on inflation.
Disadvantages of Cost Audit
There are a few disadvantages of cost audit mentioned below:
(a) For small concerns, it would be unnecessary to carry out cost audit.
(b) Audit associates have no interest as they carry out the work mechanically.
(c) As each business has its own problems and procedures, a rigid programme
cannot be laid down for all types of business.

Cost Auditor: Qualifications


Basic qualification for a cost auditor is the prescribed examinations and practices by
the professional & Regulatory body for Cost & Management Accountancy of the
country or in case a person is the member of other professional bodies, exemption
should be allowed to him/her under the mutual recognition agreements (MRAs) to
become a cost auditor.
Cost Auditor: Functions
The Institute of Cost and Works Accountants of India has detailed the principal
functions of a cost auditor by way of comparison with the functions of the auditor of
financial accounts. The principal functions of cost auditor, according to the aforesaid
Institute are the following:

Inventory
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(a) Is the size of the inventory adequate or excess compared with the
production programme?
(b) Is the provision most economical?
(c) Does it ensure optimum order size?
(d) Does it take into account the storage cost on the one hand, and carrying
cost on the other?
(e) Does it take note of lead time of the various items or groups of items?
(f) Does the receipt and issue system cause any bottle-neck in production?
(g) Does it involve too many forms and too much paper work?
(h) Is there any room for reduction of inventory cost consistent with
production needs?
(i) Is the inventory as per the priced store ledger and as certified by the
management physically correct?
(j) Is the same amount of attention and care given to monies translated into
material things like raw materials, stores and supplies of all kinds as given to
liquid cash?
(k) Does the issue of raw materials make the production in accordance with
the standard or schedule or otherwise or covered by authorised schedule?
(i) Is the expenditure of consumable stores within the standard? If not, why
not?

Opening and Closing Stocks


(a) The opening stock is not unduly large compared with the volume of
production during the year;
(b) The opening stock against various jobs really represents the actual physical
stock in the production shop and is not merely an accounting figure;
(c) The responsibility of the shop foreman in-charge of the stock held in the
production shop is clear and properly documented; that he maintains proper
record of actual consumption vis-a-vis the actual withdrawal from the stock.
Valuation and correct indication of closing stock in the Trading and Profit and
Loss Account and in Balance Sheet is equally important. The Cost Auditor will
examine and certify:
(a) The physical verification is correctly carried out;
(b) The valuation is correct with reference to the actual cost of production and
recognised policy for valuation;

(c) The volume of closing stock is commensurate with the volume of


production and that it does not reflect any failure or bottleneck in sales budget
or production budget;
(d) The volume of unmoved stores is not abnormal in comparison with the
normal rate of yearly consumption. The Cost Auditor will recommend
disposal of such unmoved stores with consequent release of capital
unnecessarily locked up to the advantage of the financial resources of the
concern.

Store Issue Procedure in Stocks


(a) The withdrawal of materials or stores to production shop is scientific or
covered by authorised schedule and permits receipt to be located;
(b) There is no possibility of loss or pilferage of stock lying in the production
section;
(c) The surplus materials and scraps arising in production shops are returned
to stores correctly and without delay for which necessary credit is given to
unit cost of production. If transferred to other jobs, proper transfer voucher
has been prepared and copies sent to the accounts, stores, etc.
Work-in Progress
(a) The work-in-progress has been physically verified and that it agrees with
the balance in the incomplete cost card;
(b) The valuation of the work-in-progress is correct with reference to stage of
completion of each job or process and the value job cost cards or process cost
sheet;
(c) There is no over-valuation or under-valuation of opening work-in-progress
or closing work-in-progress, thereby artificially pushing up and down net
profits or net assets as the case may be;
(d) The volume and value of work-in-progress is not disproportionate
compared with the finished out-turn.

Labour
(a) Proper utilisation of labour and increase in productivity are now receiving
attention, several productivity teams have emphasised importance of higher
productivity. It is, therefore, essential to assess the performance efficiency of
labour and compare it with standard performance, so that labour utilisation
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could be progressively improved. The labour force in Indian industries is


generally very high compared to similar types of industries in other developed
countries. Our aim should be to reach that level, though not immediately but
over some time. A study of this nature would give an idea where the
inefficiency lies so that timely and adequate steps could be taken to ensure
maximum utilisation of labour to reduce labour cost.
(b) Cost of labour is allocated to different jobs with reference to time or job
cards.
Capacity Utilisation
(a) The idle capacity in any production shop or of transport facilities for
distribution is not excessive;
(b) The production volume and overall machine time utilised are
commensurate. In other words, the machine hours utilised has given the
optimum output.

Overheads and indirect expenditure


(a) The allocation of indirect expenditure over production, sales, and
distribution is logical and correct;
(b) The compared with the value of production in a production shop,
overhead charges are not excessive;
(c) The actual indirect expenditure does not exceed budgets or standard
expenditure significantly and that any variations are satisfactorily explained
and accounted for;
(d) The relation of indirect expenditure in keeping with the load on individual
production shop is appropriate;
(e) The correctness of appropriate allocation of overhead expenditure (both
production and sales) will be certified by the cost auditor;
(f) The allocation of overheads between finished products and unfinished
products is in accordance with correct principles.
Presently we shall discuss in detail the aspects to be dealt with in the cost auditors
report pursuant to the Cost Audit (Report) Rules, 1968 as amended in 1996 and again
in 2001.
These rules came into force from October 1, 2002. The aforesaid Rules have been
issued pursuant to Section 233-B (4) of the Companies Act which requires the cost
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auditor to make a report on the cost accounts and cost records maintained by the
company.
It may be noted that the requirement of the statutory cost audit in our Companies Act
is something special, because statutes in most of the other countries do not contain a
similar requirement. In most of the countries the concept of cost audit as such is also
non-existent and the objectives, whatever they may be, are achieved by properly
designing the scope and depth of internal audit.
The object with which the statutory requirement of cost audit has been included in
the Companies Act can only be ascertained by a study of the cost audit report
requirements. They include control over cost, wastage and losses, efficiency in the
utilisation of human, material, and other resources, determination of appropriate
selling price, proper maintenance of cost records appropriate use of the costing
system, etc.
For determining the scope and extent of cost audit, the cost auditor will necessarily
have regard to the relevant costing records required to be maintained pursuant to
Section 209(l) (d) of the Companies Act, in respect of products manufactured by
certain types of industries and the cost sheets prescribed. The records are broadly
based on the elements of cost and, therefore, there is a great deal of similarity
between the various records prescribed for various products. The cost sheets,
however, vary from product to product, having regard to the nature of the product
and the production process involved. The cost auditor will also have to pay special
attention to the reporting requirements laid down under the Cost Audit (Report)
Rules.
Cost audit programme
The audit programme should include all the usual broad steps that a financial auditor
includes in his audit programme. However, the significant things that should not be
missed are: proper vouching of expenses, capital and revenue character
determination, allocation of expenses, apportionment of overheads, arithmetical
accuracy, the statutory requirements, examination of contracts and agreements,
review of the Boards and shareholders minute books to trace important decisions
having bearing on costs, verification of title deeds and documents relating to
properties and assets, etc. Cost audit, in order to be effective, should be completed at
one time as far as practicable. The exact content of cost audit largely depends on the
size of the organisation, range of products, production process, the existence of a
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well organised costing department and of a well designed costing system, and the
existence of a capable internal auditing system. Other relevant considerations may
be:
System of cost accounting in vogue and the organisation of the cost
department, forms, schedules, etc.
System of internal check used in the organisation.
Frequency of audits, areas to be covered, volume of transactions, efficiency of
the internal check, needs of management, purpose of cost audit, its benefits,
etc.
After considering the aforesaid factors a set of procedures and instructions are
evolved which may be termed the cost audit programme. Like every other audit, a
systematic planning of cost audit routine is necessary. Broadly speaking cost audit
programme may be divided into the following stages:
(a) Review of Cost Accounting Records
This will include:
Method of costing in use - batch, process or unit
Method of accounting for raw materials; stores and spares, wastages, spoilage
defectives, etc
System of recording wages, salaries, overtime and spares, wastages, etc
Basis of allocation of overheads to cost centres and of absorption by products
and apportionment of service departments expenses
Treatment of interest, recording of royalties, research and development
expenses, etc
Method of accounting of depreciation
Method of stock-taking and its valuation including inventory policies
System of budgetary control
System of internal auditing
(b) Verification of cost statements and other data
This will include the verification of:
Licensed, installed and utilised capacities
Financial ratios
Production data
Cost of raw material consumed, wages and salaries, stores, power and fuel,
overheads provision for depreciation etc
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Sales realisation
Abnormal non-recurring and special costs
Cost statements
Reconciliation with financial books
(c) General Features of Cost Records
The following are the general features of cost records Materials
Manufactured components and intermediates
Stores and spare parts
Wages and salaries
Service department expenses including expenses on utilities
Packing
By-products
Production and Sales
Inventories
Variances
Cost Statements
Reconciliation of Cost and Financial Accounts
Statistical records
Incorporation of Provision Relating to Inter-Company Transfer in the Cost
Accounting Records Rules
Cost audit procedure
The main points in cost audit procedure are summarized below:
(a) Vouching: Inspecting the documentary evidence which substantiates the
transaction
(b) Checking & Ticking: Checking of calculations and postings. The cost auditor
should mark and put his initial on the records seen in different colour pencils.
(c) Test checking: Procedural tests to decide the extent to which he can rely on
internal check in the company.
(d) Questionnaire: Issuing questionnaires to appropriate authorities to seek
clarifications. It should be framed in such a manner that the answers are
generally expected in the yes or no form. It is in sequential order which can
be in a standard form to help the cost auditor get acquainted with the company.
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Steps in Cost audit procedure


The steps taken by various authorities are given below:
The Company Law Board (CLB) notifies in the Govt. Gazette, the prescribed
maintenance of Cost Accounting Record Rules (CARR).
The company has to maintain cost records as per CARR.
The CLB issues cost audit order to individual company for a product for the
year and thereafter every alternate financial year u/s 233B of the Companies
Act, 1956.
The cost auditor obtains certificate from cost accountant u/s 224(2-B).
The company has to see that Board Resolution is passed proposing
appointment of cost auditor who may be a cost accountant in practice or a firm
of cost accountants.
The company has to apply to CLB requesting the approval of the proposed
cost auditor in Form 23C with copies of board resolution, certificate from cost
accountant and a challan for prescribed fee.
The CLB gives its approval for appointment of cost auditor.
The company appoints and intimates the cost auditor.
The company and the cost auditor take a pre-audit review of cost accounting
records and systems etc.
The company has to complete cost accounting records within 90 days from the
close of the financial year.
The cost auditor has to complete the cost audit report within 120 days from
the close of the financial year. The company has to submit 3 copies of the cost
audit report to the CLB and 1 copy to be kept with the company.
The company has to reply to the CLB within 30 days on observations in cost
audit report.
The company has to attach a copy of the cost audit report with the Income Tax
return u/s 139(9) of the Income Tax Act, 1961.
The company has to produce a copy of the cost audit report before excise
authority on demand as per notification of 159/80 CE dated 18/10/80.
Books of Accounts to be maintained by Company u/s 209(1)
Every company shall keep at its registered office proper books of account.
In the case of a company pertaining to any class of companies engaged in production,
processing, manufacturing or mining activities, such particulars relating to utilization
of material or labour or to other items of cost as may be prescribed, if such class of
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companies is required by the Central Government to include such particulars in the


books of account:
Provided that all or any of the books of account aforesaid may be kept at such
other place in India as the Board of directors may decide and when the Board of
directors so decides, the company shall, within seven days of the decision, file with
the Registrar a notice in writing giving the full address of that other place.
Exemption from Cost Audit:
The exemption from Cost Audit on year-to-year basis in the following situation:
Temporary Closure of the company/products
Negligible production activity
Fees:
Company having an authorized capital

Amount of fees to be paid

A Less than ` 25 lakh `

500

B ` 25 lakh or more but less than ` 5 cror

1000

C ` 5 crore or more

2000

Appropriate fee for each year for which approval for exemption is sought may be
remitted through demand draft drawn in favour of Pay and Accounts Officer,
Department of Company Affairs, payable at New Delhi.
Documents required:
Following documents are required to be furnished along with application for
exemption:
Printed or attested true copy of complete Annual Report containing balance
sheet and profit and loss account for the year for which exemption is being
sought along with copies of the same pertaining to preceding two years.
An affidavit containing full facts of capacity utilization, turnover and financial
status of the company such as sick or not, duly signed by two Directors of the
company and authenticated by a Notary Public.

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A brief note/status report on steps taken by the management for revival of the
said unit.

True and fair cost of production etc.: The true and fair concept is known to us in the
context of financial accounts. Based on that knowledge, it may be assumed that the
following are the relevant considerations in determining whether the cost of
production determined is true and fair:
Determination of cost following the generally accepted cost accounting
principles.
Application of the costing system appropriate to the product.
Materiality.
Consistency in the application of costing system and cost accounting
principles.
Maintenance of cost records and preparation of cost statements in the
prescribed form and having the prescribed contents.
Elimination of material prior-period adjustments.
Abnormal wastes and losses and other unusual transactions being ignored in
determination of cost.
The report of the cost auditor will be subject to the cost auditors observations and
conclusions, if any, made pursuant to clause 16 of the Annexure to the Cost Audit
Report Rules. Also the report is subject to observations of the cost auditor on the
various matters contained in the Annexure.
General Rules
The CARR issued for formulation on 4/6/1988 contain some general matter rules as
well:
Cost records should be written upon regular basis and not after the end of the
financial year.
Rule 3(4) requires that a company has to maintain information required for
cost audit report, although it might not be necessary under the CARR.
Penalty: Breach of the provisions of the CARR by way of the following:
Non maintenance of cost records or
Improper maintenance of cost records or
Delay in the completion of cost records attracts penalty. The penalty and
prosecution is prescribed as under:
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a) Para 5 of the latest CARR


b) Para 6(2) of the Cost Audit (Report) Rules and
c) Section 209(5) of the Companies Act, 1956.
Cost Audit and the Companies Act
We have by now known in general the requirements of the various Cost Audit Record
Rules issued under Section 209 (1) (d) of the Companies Act, 1956 and the general
contents. Under Section 233B(2), the auditor is appointed by the Board of Directors
of the company in accordance with the provisions of sub-section (lB) of Section 224
and with the previous approval of the Central Government. Provided that before the
appointment of any auditor is made by the Board, a written certificate shall be
obtained by the Board from the auditor proposed to be so appointed to the effect that
the appointment, if made, will be in accordance with Section 224 (lB). An audit
conducted by an auditor under this Section shall be in addition to an audit conducted
by an auditor appointed under Section 224. It may be emphasised here that since the
requirement is for audit, the approach and attitude of the auditor is essential in this
field also. All the qualities that make a good auditor are essential. The cost auditor,
like the auditor of the financial accounts, should be independent, detached and
impersonal. He should be able to determine and correlate facts, exercise judgement
and form opinion about the matters in which he is concerned in his professional
capacity. He is expected to carry out his work by applying reasonable care, skill and
competence.
Cost Audit: Current News
Is cost audit losing its relevance?

[By Asish K Bhattacharya]

By introducing the concept of 'public interest', the government has made the 2014
Rules unnecessarily complicated
The Companies Act, 2013 has retained the provisions relating to maintenance of
cost records and cost audit. The government has notified the Companies (cost records
and audit) Rules 2014 on June 30, 2014. The 2014 Rules have severely curtailed the
scope of cost audit. This U-turn in policy has dismayed the cost accounting
profession
and
experts.
The new Rules mandate the maintenance of cost records in companies engaged in the
production of specified goods in strategic sectors, companies engaged in an industry
regulated by a sectoral regulator or a ministry or department of central government,
companies operating in specified areas of public interest and companies engaged in
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the production, import and supply or trading of specified medical devices. The Rules
also provide for a threshold in terms of net worth or turnover of companies, thus,
restricting
its
applicability
to
large
companies.
It appears that the government has mandated maintenance of cost records and cost
audit only in those sectors, which might require policy intervention. For the first
time, it has brought construction companies, companies engaged in health services
and companies engaged in education services within the ambit of cost audit. The
government has categorised those as companies operating in the area of public
interest.
The government has excluded the industries in which the competition among
companies is significant. Presumably, the government has taken the view that cost
audit is not relevant in companies that operate in a competitive environment. It is
argued that those companies maintain cost records voluntarily, as they are required to
continuously analyse cost and revenue data for managing costs, in order to retain and
enhance competitiveness on the face of competition from competing firms or
competing substitutes. In those companies, the management information system
draws data from cost records. Therefore, there is no need to mandate maintenance of
cost records and cost audit. But there is a flaw in this argument. Cost audit is no less
relevant
for
companies
operating
in
a
competitive
environment.
Any audit provides reasonable assurance about the integrity of audited information.
For example, financial audit provides assurance to shareholders and other
stakeholders about the integrity of information provided through financial statements.
Financial audit is mandated to protect the interest of minority shareholders from the
opportunistic behaviour of managers. The underlying assumption in mandating
financial audit is that managers are human beings and, therefore, are inherently
opportunistic.
Managers show opportunistic behaviour even in presenting information before the
board of directors. This is the reason why Sebi had to mandate the minimum
information to be presented before the board of directors. It is not unknown that
managers manoeuvre board process to get favourable board decisions.
Companies Act, 2013 aims to strengthen corporate governance by empowering the
board of directors. It requires independent directors to get involved in critical
decisions. They have been made responsible for strategy review, risk management,
performance evaluation and key appointments. All these require analyses of cost and
revenue data. If, we agree that managers are inherently opportunistic, the board of
directors needs an assurance from an independent agency about the integrity of cost
19

and revenue information that is placed before it. Only cost audit by an independent
cost
auditor
can
provide
that
assurance.
Cost audit has not lost relevance, even for companies operating in a competitive
environment. Benefits from cost audit outweigh its cost. If a company is already
maintaining cost records, the incremental cost is the audit fee. The cost of regular
staff, which supports the audit, is fixed in nature. Therefore, while the cost is
immaterial, benefits in terms of improved corporate governance are immense, may
not be from the management's perspective. By introducing the concept of 'public
interest', which is difficult to define, the government has made the 2014 Rules
unnecessarily complicated and difficult to implement. Rules should be transparent
and simple. The current Rules provide the scope for jockeying for inclusion and
exclusion of companies from the ambit of cost audit. The government should bring
all companies, except small companies, within the ambit of cost audit. It is also
important that the cost accounting profession quickly upgrades skills in developing
costing systems for emerging businesses, including those in the service sector.
- Business Standard

20

About ACC Limited


ACC (ACC Limited) is India's foremost manufacturer of cement and concrete.
ACC's operations are spread throughout the country with 17 modern cement
factories, more than 50 Ready mix concrete plants, 21 sales offices, and several zonal
offices. It has a workforce of about 9,000 persons and a countrywide distribution
network of over 9,000 dealers.
Since inception in 1936, the company has been a trendsetter and important
benchmark for the cement industry in many areas of cement and concrete technology.
ACC has a unique track record of innovative research, product development and
specialized consultancy services. The company's various manufacturing units are
backed by a central technology support services centre - the only one of its kind in
the Indian cement industry.
ACC has rich experience in mining, being the largest user of limestone. As the
largest cement producer in India, it is one of the biggest customers of the domestic
coal industry, of Indian Railways, and a considerable user of the countrys road
transport network services for inward and outward movement of materials and
products.
Among the first companies in India to include commitment to environmental
protection as one of its corporate objectives, the company installed sophisticated
pollution control equipment as far back as 1966, long before pollution control laws
came into existence. Today each of its cement plants has state-of-the art pollution
21

control equipment and devices. ACC has won several prizes and accolades for
environment friendly measures taken at its plants and mines.
ACC plants, mines and townships visibly demonstrate successful endeavours in
quarry rehabilitation, water management techniques and greening activities. The
company actively promotes the use of alternative fuels and raw materials and offers
total solutions for waste management including testing, suggestions for reuse,
recycling and co-processing. . The company has also been felicitated for its acts of
good corporate citizenship.
ACC has taken purposeful steps in knowledge building. We run two institutes that
offer professional technical courses for engineering graduates and diploma holders
which are relevant to manufacturing sectors such as cement. The main beneficiaries
are youth from remote and backward areas of the country.
ACC has made significant contributions to the nation building process by way of
quality products, services and sharing expertise. Its commitment to sustainable
development, its high ethical standards in business dealings and its on-going efforts
in community welfare programmes have won it acclaim as a responsible corporate
citizen. ACCs brand name is synonymous with cement and enjoys a high level of
equity in the Indian market. It was the first cement company to figure in the list of
Consumer Super Brands of India.

Vision
To be one of the most respected companies in India; recognised for challenging
conventions and delivering on our promises

Awards & Accolades


Prominent awards won by us over the years comprise of:
Outstanding Corporate Vision, Triple Impact - Business Performance Social
& Environmental Action and Globalisation for 2009-10 from Federation of
Indian Chambers of Commerce and Industry
22

Asia Pacific Entrepreneurship Award in two categories, Green Leadership and


Community Engagement by Enterprise Asia.
Drona Trophy - By Indian Bureau Of Mines for extra ordinary efforts in
protection of Environment and mineral conservation in the large mechanized
mines sector.
Indira Gandhi Memorial National Award - for excellent performance in
prevention of pollution and ecological development
Good Corporate Citizen Award - by PHD Chamber of Commerce and
Industry

National Award for Fly Ash Utilisation - by Ministry of Power, Ministry of


Environment & Forests and Dept of Science & Technology, Govt of India for manufacture of Portland Pozzolana Cement.

ACC Limited

Cost Audit Report, 2014

Cost Auditors Report of ACC Limited for the year ending 31st December 2013
I/We, N I Mehta & co. having been appointed as Cost Auditor(s) under Section 233B Companies
Act of M/S ACC Limited (hereinafter referred to as the company, having its registered office at
Cement House, 121 Maharshi Karve Road, Mumbai-400 020, have audited the books of account
prescribed under the said Act, and other relevant records in respect of the cement business for the
period/year 31st December 2013 maintained by the company and report, in addition to my/our
observations and suggestions in Para 2.
1. I/We have/have not obtained all the information and explanations, which to the best of
my/our knowledge and belief were necessary for the purpose of this audit.
2. In my/our opinion, proper cost records, as per companies rule, 2011 prescribed under clause
(d) of sub section (1) of section 209 of the companies act 1956, have/have not been
maintained by the company so as to give a true and fair view of the cost of
production/operation, cost of sales and margin of the product/activity groups under
reference.
3. In my/our opinion, proper returns adequate for the purpose of the Cost Audit have/have not
been received from the branches not visited by me/us.
23

4. In my/our opinion and to the best of my/our information, the said books and records give/do
not give the information required by the Companies Act, in the manner so required.
5. In my/our opinion, the said books and records are/are not in conformity with the Cost
Accounting Standards issued by The Institute of Cost and Works Accountants of India; to
the extent these are found to be relevant and applicable.
6. In my/our opinion, company has/has not adequate system of internal audit of cost records
which to my/our opinion is commensurate to its nature and size of its business.
7. Detailed unit-wise and product/activity-wise cost statements and schedules thereto in
respect of the product groups/activities under reference of the company duly audited and
certified by me/us are/are not kept in the company.
8. As required under the provisions of companies (cost audit report) rules, 2011, I/we have
furnished Performance Appraisal Report, to the company, on the prescribed form.
The matters contained in the ANNEXED Forms are part of this report.
Date: 06/02/2014
Place: Mumbai

N I MEHTA & CO
Cost & Management Accountants

24

ACC Limited

1.

CAPACITY (Tonne)

(a) Clinker:

Cost Audit Report, 2014

Licensed / Installed
705,000

Utilized

% of Rated

493,426

70%

1,145,094

57%

Line-I (300 days x 2,350 T/D)


1,995,000

Line-II (300 days x 4,300


T/D) Total

Line-I clinker capacity is based on 300 working days with capacity of 2,350 tonne per day.

Line-II clinker capacity is based on 300 working days with capacity of 4,300 tonne per day.

The company has not utilized its full production capacity due to certain plant modifications and
use of local coal during the year.

(b) The company is engaged in the manufacturing and sale of cement.

2.

COST ACCOUNTING SYSTEM

Manufacturing of cement is a continuous process; therefore, the company uses process cost
accounting system as prescribed by Cost Accounting Record Rules (CARR)

The company has classified whole manufacturing process into six major stages / departments
for the purpose of maintaining cost accounting records.

The company is operating EXCEL based in house software, which generates cost statements
relating to six stages / departments and allocates cost thereon.

25

ACC Limited
2014
3.

PRODUCTION (a)

Cost Audit Report,


Clinker

Qty in Tonne
Production
Year
s
2012
2013

Line-I
Ordinary Portland
Sulphate Resistance

Line-II

Increase / Decrease
Tonne

493,426
493,426

622,012
3,834
625,846

(128,586)
(3,834)
(132,420)

(21%)
(100%)
(21%)

651,668
1,145,094

1,014,246
1,640,092

(362,578)
(494,998)

(36%)
(30%)

Ordinary Portland

Cement
Ordinary Portland
Sulphate Resistance

(b)

The plant design facilitates production of the various types of cement as per production
requirements within the installed capacity limits.

(c) There was addition in production capacity in the shape of Line-II in the year 2005-06.

26

ACC Limited

Cost Audit Report, 2014

RAW MATERIAL
(a) Major Raw Materials Consumed

Limestone

Clay
209,902

Laterite
64,657

Bauxite
32,755

Gypsum
73,034

12,162

34,628

17,240

28,777

Quantity

2013
Value

Rate per

1,498,106

140,507

94

Quantity

2012
Value

2,122,977

188,396

Rate per

89

Quantity

2011
Value

Rate per

91

1,572,270 142,326

192,121

11,133

58

291,022

16,401

56

66,207

35,879

542

121,933

62,485

512

11,472

6,670

581

23,068

10,422

452

42,657

15,573

58

536

526

365

89,032

35,747

402

394
27

Fly Ash
-

809

307

380

ACC Limited

Direct raw material cost

Cost Audit Report, 2014

210,070

313,451

235,133

Material handling & other cost

11,669

24,329

21,579

Duty draw back on exports

(1,530)

(1,050)

10,182

336,730

266,894

Add / (less):

Total cost of raw material consumed

220,209

28

(b) Major Raw Materials consumption per unit of production compared with standard requirements.

Description

Standard

2013
Tonne

ACTUA
L
2012
Tonne

2011
Tonne

% Increase /
(Decrease)
2013

2012

2011

Limestone

Clinker

1.32

1.31

1.29

1.27

(1.11)

(2.49)

(4.01)

Clay / Shale

Clinker

0.16

0.17

0.18

0.17

5.52

13.21

6.92

Laterite/Iron Ore Clinker

0.04

0.06

0.07

0.05

52.15

84.21

31.58

Bauxite

Clinker

0.01

0.01

0.01

0.03

0.18

200.00

Clinker

1.53

Cement

0.05

TOTAL

Gypsum

1.54

0.04

1.52

0.06

1.53

0.06

0.91

(17.46)

(0.78)

16.00

0.20

20.00

(c) Explanation of Variances

The variances from standards are attributed to chemical contents of raw materials.

(d) Method of Accounting


The company is maintaining raw material records using perpetual inventory system. The per unit
cost for issue of material is determined using average cost basis.
Limestone and shale / overburden are extracted from leased mines.
Laterite, Iron ore, Bauxite and Gypsum are purchased from open market. The quantities and
values are recorded in the stores ledgers and general ledgers from receiving reports.

29

5.

WAGES AND SALARIES

(a) Total wages and salaries paid for all categories of employees
2013
Rs. in '000

2012
Rs. in '000

Increase /
Rs. in '000

137,841

117,291

20,550

Direct labour cost on production

Indirect labour cost on production

57,219

59,006

(1,787)

Total Direct & Indirect Labour Cost

195,060

176,297

18,763

Employees' cost on administration

69,126

57,529

Employees' cost on selling and distribution

31,425

31,895

295,611

265,721

Total employees cost

11,597

(470)

29,890

Salaries & wages increased mainly due to inflationary trend and annual increments.

30

(b) Salaries and perquisites of chief executive, directors and executives

Rs. in
'000

31

Chief
2013
Total number
17

Executives
2013
2012
1
1

2012

15

(Rupees in '000')
Basic salary
19,764

4,784

Contribution to provident fund and gratuity


6,329
12,120

1,660

Allowances & benefits


20,276
17,673
8,236

46,369

4,200

17,188
928

5,774

3,108

12,218

46,981

In addition, the chief executive and all the executives of the company have been provided with
free use of company owned and maintained cars with other benefits in accordance with their
entitlements as per rules of the company. Payments to CEO include arrears on account of previous two
years increments paid during the year.

(c) Total man-days of direct labour


Worked
Available
% Worked

Available: 300 days x 362 workers = 108,600 days


66
108,600
Worked:

197 days x 362 workers =

71,314

71,314 days

(d) Average number of production workers employed


2013
2012
362

% of Increase
342

32

(e) Per tonne direct labour cost increased mainly due to decrease in volume of production as compared to last
year.

(f) Comments on Incentives Scheme


Gratuity
Permanent
employees
The company operates a funded gratuity scheme for all its permanent employees which provides for a
graduated scale of benefits dependent on the length of service of the employee, subject to the
completion of minimum qualifying period of service. Contributions are made to the fund on the basis of
actuarial recommendations. As at the Balance Sheet date on 31-12-2013, the gratuity scheme has been
terminated.
Contractual
workers
The company also operates unfunded gratuity scheme for its contractual workers. The charge has been
made on the basis of actuarial recommendations.
Provident Fund
The company also operates an approved contributory provident fund for all its permanent employees
who have completed the minimum qualifying period of service and equal monthly contributions are
made both by the company and the employees of at the rate of 10 percent of basic salary.

33

6. STORES AND SPARE PARTS


(a) System of stores

These are valued at lower of moving average cost and net realizable value, except for furnace oil and
coal, which are valued at average cost. Items in transit are valued at cost comprising invoice value plus
other charges incurred thereon.

All items of stores are properly coded and entered by designated staff members of the stores department,
on daily basis.

(b) Proportion of closing inventory of stores representing items which have not
moved for over twenty four months.

No provision has been made for slow moving items in the accounts during the year under review.

7.

DEPRECIATION

(a) Method of depreciation

Depreciation is calculated on straight line method except plant and machinery and coal firing system on
which depreciation is charged on the basis of units of production method. Depreciation on additions is
charged from the month in which the asset is available for use and on disposals up to the month of
disposal.

Maintenance and normal repairs are charged to profit and loss account as and when incurred. Major
renewals and improvements are capitalized. Gains and losses on disposals of assets, if any, are included
in the profit and loss account.

(b) Basis of allocation of depreciation on common assets to the different departments.

Depreciation on common assets is allocated as under:

(i) Cost of Sales


(ii) Admin. & General
(iii) Selling & Distribution

2013
Rs. in '000
% age

373,493
3,106
3,719
380,318

98
1
1
100

2012
Rs. in '000
% age

427,440
4,434
3,432
435,306

(c) Basis of charging depreciation to cost of products

The depreciation is allocated to cost of production on the value of assets employed.

98
1
1
100

8.

OVERHEADS

2013
Rs. in '000

2012
Rs. in '000

2011
Rs. in '000

(a) Total amounts of the overheads

(i)

Factory

449,846

507,475

446,767

97,654

89,978

86,876

(iii) Selling & distribution

359,975

466,047

108,405

(iv) Financial charges

451,465

413,203

365,848

1,358,940

1,476,703

1,007,896

(ii) Administration

(i)

Factory Overheads
2013

2012

2011

Rs. in '000

Rs. in '000

Rs. in '000

% Increase / (Decrease)
Based on
Based on

Travelling and conveyance

27,318

23,284

16,122

17

69

Insurance

10,236

10,423

10,072

(2)

37,935
2,324
362,299

44,131
2,695
416,238

46,517
2,894
357,681

(14)
(14)
(13)

(18)
(20)
1

9,734

10,704

13,481

(9)

449,846

507,475

446,767

(11)

Repairs & maintenance


Communication
Depreciation
Other manufacturing expenses
1

Factory overheads decreased mainly due to decrease in repairs & maintenance and depreciation cost.

(28)

(ii) Administration Overheads

% Increase / (Decrease)
Based on
Based on
Rs. in '000

Salaries, wages and benefits


Travelling and conveyance
Vehicle running expenses
Communication
Printing and stationery
Utilities
Repair & maintenance
Rent, rates and taxes
Legal and professional charges
Insurance
Auditors' remuneration
Fee and subscription
Entertainment
Depreciation
Others

Rs. in '000

Rs. in '000

69,126
2,095
4,150
2,232
1,528
3,809
1,667
1,846
1,835
799
3,381
548
707
3,106
825

57,529
4,177
3,319
2,262
1,786
2,583
1,544
1,995
3,108
892
3,033
2,402
693
4,434
221

52,268
5,155
3,256
2,943
1,628
2,660
1,792
4,142
1,791
837
1,289
3,180
828
4,436
671

20
(50)
25
(1)
(14)
47
8
(7)
(41)
(10)
11
(77)
2
(30)
273

32
(59
27
(24
(6)
43
(7)
(55
2
(5)
162
(83
(15
(30
) 23

97,654

89,978

86,876

12

The admin overheads increased mainly due to increase in salaries, wages & benefits, vehicle running exp.
utilities and others.

(iii) Selling and Distribution Overheads


% Increase / (Decrease)
Based on
Based on
Rs. in '000

Salaries, wages and benefits


Travelling and conveyance
Vehicle running expenses
Communication
Printing and stationery
Rent, rates and taxes
Utilities
Repairs & maintenance
Legal and professional charges
Insurance
Fee & subscription
Advertisements / sales promotion
Freight & handling Charges
Entertainment
Depreciation
Miscellaneous
(100)

Rs. in '000

31,425
722
3,474
2,335
1,454
1,789
1,457
1,597
5,038
830
1,661
2,137
301,599
738
3,719
359,975

Rs. in '000

31,895
1,011
3,128
3,005
1,490
2,676
1,331
1,269
3,447
847
1,036
1,236
409,457
787
3,432
466,047

29,077
1,169
3,407
2,452
1,308
1,768
1,627
1,854
1,342
688
1,193
5,406
53,931
771
2,409
3
108,405

(1)
(29)
11
(22)
(2)
(33)
9
26
46
(2)
60
73
(26)
(6)
8
(23)

8
(38
2
(5)
11
1
(10
(14
275
21
39
(60
459
(4)
54
232

Selling and distribution overheads decreased mainly due to decrease in freight and handling
charges which relates directly to exports.

% Increase / (Decrease)
Based on
Based on

(iv) Financial Charges

Mark-up on long term financing/loans/lease

Interest on long / short term finances


Fee, charges and commission

Rs. in '000

Rs. in '000

Rs. in '000

361,790
74,974
14,701

354,226
34,314
22,897

298,405
32,458
16,033

Advisory, arrangements and upfront fee


(100)
(100)
451,465
9

413,203
23

2
118
(36)
1,766
365,848

21
131
(8)
18,952

(b) Reasons for any significant variances

Reasons are already stated against each Para shown above.

(c) Basis of allocation of overheads

The allocation was made on activity based on %age basis.

9.

ROYALTY / TECHNICAL AID PAYMENTS

Limestone / Clay

Production

2 0 13
Rupees

in Tonne

in '000

Tonne

in Tonne

in '000

1,706,702

29,610

17.35

2,414,659

39,964

Rupees / Production

2 0 1 2
Rupees
Rupees /
Tonne
16.55

Royalty and excise duty is paid to the Provincial Govt. on the quantity of lime stone / clay extracted and
transported to mill from land at statutory rates.

10. ABNORMAL NON-RECURRING FEATURES

(a) Features affecting production

NONE

NONE

(b) Special expenses

11. COST OF PRODUCTION

(As per Schedule-1 attached)

Qty. in
Tonne
1,033,587

Cement
3,330,921

3,223

1,486,656

2 0 1 3
Rs.
in
3,733,802

Rs.

Qty. in

Per
Ton

Tonne
2,512

2 0 1 2
Rs.
in
28

Reasons for variances

Following factors are attributed to the increase in cost of production:


i) Increase in cost of fuel.
ii) Increase in cost of power.
iii) Increase in cost of packing
material.
iv) Low volume of production.

12. SALES
(As per Schedule-2 attached)

Rs.
Per
Ton

Increase

Qty. in

2 0 1 3
Rs. in

Local

922,510

3,973,092

OPC

922,510

SRC

Export

OPC

Clinker

Total

Qty. in

2 0 1 2
Rs. in

4,307

1,329,926

3,383,537

3,973,092

4,307

1,337,224

3,401,864

104,235

456,064

4,375

154,358

555,253

3,597

22

243,585

1,027,143

4,217

447,790

1,451,900

3,242

30

1,166,095

5,000,235

2,719

58

Rs.

4,288

Cement was exported to Afghanistan, and Dubai.

Clinker was exported to Dubai.

1,785,014 4,853,764

Increase /
Rs.
2,544
2,544

69
69

13. PROFITABILITY
(As per Schedule-3 attached)

Qty. in

2 0 1 3
Rs. in

Rs.

Qty. in

2 0 1 2
Rs. in

Rs.

Increase /
(Decrease)

Profit / (Loss) Local

OPC

SRC

Export

OPC

Clinker

Total

922,510

342,165

371

1,329,926

(455,858)

(343)

(208)

922,510

342,165

371

1,337,224

(458,261)

(343)

(208)

104,235 (104,760)

(1,005)

154,358

(38,176)

(247)

306

243,585 (167,859)

(689)

447,790

(115,753)

(258)

167

1,166,095

174,306

149

1,785,014

(574,014)

(322)

(146)

In spite of the adverse effect of cost inputs and exchange fluctuation loss the improved selling
price has provided relief in achieving profitability.

14. COST AUDITORS' OBSERVATIONS AND CONCLUSIONS

(a) Matters which appear to him to be clearly wrong in principle or apparently unjustifiable.

No such matters have so far come to our notice except that current liabilities Rs. 3,489,131
million against current assets Rs. 1,020,577 million shows that current liabilities increased by 242%
over the current assets. The current ratio is negative which speaks of weak liquidity position of the
company.

(b) Cases where the company funds have been used in a negligent or inefficient
manner.

NONE
=

(c) Factors which could have been controlled but have not been done resulting in increase in the
cost of production.

Plant capacity has not been fully utilized which is the main cause of low
profitability.

(d) (i)

The Adequacy or otherwise of Budgetary Control System, if any, in vogue in the company.
The company prepares its budget on annual basis. A monthly report comparing actual results with
budget is generated along with the reasons for major variances. On the basis of such variances,
corrective measures are initiated, implemented and followed up.

(ii) The scope and performance of Internal Audit, if any.

A full fledged internal audit department has been established by the company. The audit findings are
reported to the top management through the audit committee and corrective measures are
immediately adopted wherever necessary.

(e) Suggestion for improvements in performance.

(i)

rectification of general imbalance in production facilities

Cement grinding capacity of 1,620,000 M.Tonne is not in harmony with clinker capacity of 1,995,000
M.Tonne.
Management may consider rectifying the imbalance in the plant.
(ii) fuller utilization of installed capacity

Optimum plant capacity has not been fully utilized in the year under review. Efforts should be made
to utilize the company at the maximum level.

(iii) Comments on areas offering scope for

(a) Cost reduction

The management shall have to fully utilize the plant capacity to reduce per tonne cost on larger
volume of production.
(b) Increased productivity
Same comments as above.
(c) Key limiting factors causing production bottle necks
Owing to technical reasons modification had been carried out in the plant to remove the bottle
necks.
(d) Improved inventory policies
P r e s e n t inventory policies appear to be satisfactory except dead / unusable stores and
spares which are lying in inventory.

(e) Energy conservancy


T h e company is using `COAL' irrespective of its proper blend of local and imported
quality to which cost saving in cost was lost.

(iv) State of technology

The company uses 'Dry Process' which is the latest technology in cement production.

(v) Plant

Initially the plant was new when installed. However during the year 2005-2006, a second line
(Kiln-II) was installed and commissioned which includes new and used equipments.

15. RECONCILIATIONS WITH FINANCIAL STATEMENTS


Cost accounts of the company are in agreement with financial accounts for the year
ended December 31, 2013.

16. COST STATEMENTS

Copies of all cost statements on the formats prescribed, duly authenticated by the
Chief Executive and Chief Financial Officer of the company, and verified by us are
appended to the report.

17. MISCELLANEOUS

Figures have been rounded off to the nearest thousand rupee.

Previous year's figures have been re-arranged and regrouped where necessary to facilitate
comparison.

N I MEHTA & CO
Mumbai: 06 Feb 2014

Cost & Management Accountants

Conclusion
Cost audit has always played an important role to facilitate the management in
making important decisions. Although weightage is generally given to statutory
audit, questioning the significance of cost audit; it is an integral part which is
gradually gaining popularity. Unlike statutory audit, it lays emphasis on
performance evaluation through cost records.
In case of ACC limited, cost audit has helped with analytical review of cost data,
detection of reasons of visible and invisible losses, inefficiencies, unusual wastages
and cost variances with the past performance and industry average.
By applying various management accounting techniques, it has helped ACC
Limited in reduction of cost of production, added competitive advantage and profit
maximization.

Bibliography

Websites
www.acclimited.com
www.caclubindia.com
www.icmai.in

Books
Cost Accounting Manual by ICAI
Advanced Cost Accounting M.com-I by Sheth Publishers

Newspapers
Business Standard, August 2014
Economic Times, July 2014