Submission of Cost Audit Report:
- According to sub rule 3 of Rule 4 of the Companies (Audit of Cost Accounts) Rules 1998: “The cost auditor shall make out a report within 60 days of his appointment to the Directors in the form set out in Appendix II, along with statement of capacity utilization and stock in trade as specified in clauses (a) and (b) of sub rule (1), in the form set out in Appendix III and simultaneously shall submit two copies thereof to the Securities and Exchange Commission of Pakistan and the registrar concerned.” The prescribed form of the cost auditor’s report requires a cost auditor to confirm that the cost accounting records have been or have not been maintained in accordance with the cost accounting record order/rules, issued under clause (e) of sub-section (1) of Section
230 of the Companies Ordinance 1984.
- In view of the varying practices followed in record keeping and maintaining cost accounting records, by companies to which the cost accounting record order/rules apply, the cost auditor should carefully express an opinion, after satisfying himself that all the information required in the prescribed Schedules and Annexure is readily available in a verifiable form in the cost accounting records maintained.
The Report Format:
The cost auditor in his report has to confirm the conclusions drawn from the cost audit evidence gathered during performance of cost audit. Any deviation or error of omission or commission in the records or in the maintenance of cost accounting records observed during cost audit may be rectified by the company during the course of the cost audit, in order to avoid an unfavorable opinion in the cost auditor’s report. The cost auditor has also to confirm in his report that all information and explanations required by him were readily provided, which to the best of his knowledge and belief were necessary for the purpose of cost audit. The cost auditor has to confirm in his report that proper returns, statements, schedules for the purpose of audit of cost accounts were duly received from branches and offices not visited by him, and that the books and records give or do not give the information required by the rules in the manner required. He has also to give his opinion on the statements of capacity utilization and stock in trade, and confirm that the same are in agreement with the books of the accounts of the company and exhibit true and fair view of the company’s affairs. The cost auditor has also to confirm whether or not the cost accounting records maintained by the company give a true and fair view of the cost of production, processing, manufacturing and marketing of each product of the company under reference. In giving this opinion, the cost auditor uses his judgment, keeping in view all his findings during the course of cost audit and the audit evidence collected by him.
Appendix III of Companies (Audit of Cost Accounts) Rules 1998:
In Appendix III referred to in sub rule 3 of Rule 4 of the Companies (Audit of Cost Accounts) Rules 1998, particulars which have to be included in the cost auditor’s report to the directors of the company have been enumerated. Most of the particulars which should be included in the cost auditor’s report have been discussed in the foregoing chapters while describing performance of cost audit procedures. Evaluating the cost accounting system has been described in chapter VII. Audit of capacity utilization, production, raw materials, wages and salaries, stores and spare parts have been explained in chapter VI. Depreciation and overheads along with other important elements of cost have been elucidated in the same chapter i.e. chapter VI. The remaining items given in Appendix III, which have to be commented upon in the cost auditor’s report, are given in the paragraphs which follow.
Royalty/Technical Aids Payments:
Industrial units which have acquired technology under some agreement have to pay royalty or make some technical assistance payment, which amount should appear as part of the cost of the product. The cost auditor evaluates the total amount of such royalty/technical aid fee payable for the year and sees that the amount is in accordance with the agreement. Such amount forms a part of the cost of production and its incidence on per unit cost should be computed. Cost auditor should also look into whether: (i) the agreement is legally in force and (ii) the agreement is in line with the laws and regulations.
Abnormal Non-recurring Features:
- If there have been any abnormal and/or non-recurring features affecting production during the year, such as strikes, lock-outs, major break-downs in the plant, substantial power cuts, serious accidents etc., they should all, as far as practicable, be mentioned in the cost auditor’s report and their impact on the cost of production should be indicated. Similarly, if some abnormal and/or non- recurring costs were incurred during the year and were directly allocated to the cost of the products under reference, the total amount so allocated and the incidence on the per unit cost, should be indicated in the cost auditor’s report.
- Abnormal and non-recurring costs should be tested both for principle and materiality. As a result of any unusual event, like major break-down, sabotage etc., considerable wastage of material inputs may have occurred. The cost auditor should consider all aspects and not just take the impact of total fixed expenses on the cost of production.
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