Companies (Audit of Cost Accounts) Rules, 1998:
The basic structure of the Cost Audit has been laid down in the Companies (Audit of Cost Accounts) Rules, 1998. Cost Audit has to be carried out every year from 1997-98 in all industries to which Cost Account Records Orders issued by SECP apply. Cost audit ascertains compliance with “Cost Accounting” Record Orders. During cost audit, the cost accounting system is also studied, which should be proper and adequate for ascertaining cost of the product under reference and for providing all information required to complete the prescribed schedules and annexure given in the relevant cost accounting record orders/rules.
Cost Accounting Records Order:
1. Vegetable Ghee and Cooking Oil Companies 1990.
2. Cement Companies 1994.
3. Sugar Companies 2001.
4. Fertilizer Companies 2008.
5. Thermal Energy Companies 2008.
6. Petroleum Companies 2008.
7. Natural Gas Companies 2008.
8. Polyester Fiber Companies 2008.
9. Chemical Fertilizer Companies 2012.
Development of Cost Audit Profession:
During World War I, a large number of contracts were awarded on cost plus basis, which made it necessary for the contractors to maintain cost accounting records. Cost Accounting techniques are needed not only to help the management exercise cost control, but the cost accounting records are also needed for such clients who place orders on cost plus basis. In such cases, the client has the right to examine cost accounting records or have performed cost audit. In USA, defense suppliers and contractors have to maintain cost accounting records in accordance with Cost Accounting Standards laid down by the Cost Accounting Standards Board (CASB). This is subject to cost audit to ensure its authenticity.
The Cost Accounting in its developed form helps the management of manufacturing concerns in improving the efficiency, in making the business decisions and in evaluating the performance of entities in the same industrial sector through standardizing the systems and procedures. However, it is only in India, Pakistan and Bangladesh that cost audit has been formalized under Companies Ordinance/Acts. India is the pioneer in introducing Cost Audit since late 60s and now over 40 industries are covered under Cost Audit Scheme. In India and Bangladesh, only Cost and Management Accountants are eligible to conduct cost audit. In Pakistan, Chartered Accountants are also eligible to conduct cost audit.