- A cost auditor, while examining the cost accounting records, is required to exercise reasonable care and skill. What is reasonable care and skill, depends on the circumstances of each case. If an auditor does not take reasonable care and does not exercise skill, his failing even in one instance could be construed as negligence if not worse.
- An auditor is not bound to be a detective. His role becomes amply clear with the discussion of professional competence and professional ethics. However, failure on the part of an auditor makes him jointly and severally liable with those who are responsible for the management of the company.
Penalty for Non-compliance:
A cost auditor has to comply with the provisions of the Companies Ordinance to avoid any penalty. Sub-sections (1)and (2) of Section 260 of the Companies Ordinance, 1984 read:
- If any auditor’s report is made, or any document of the company is signed or authenticated otherwise than in conformity with the requirements of section 157, section 255 or section 257 or is otherwise untrue or fails to bring out material facts about the affairs of the company or matters to which it purports to relate, the auditor concerned and the person, if any, other than the auditor who signs the report or signs or authenticates the document, and in the case of a firm all partners of the firm, shall, if the default is willful, be punishable with fine which may extend to one hundred thousand rupees.
- If the auditor’s report to which sub-section (1) applies is made with the intent to profit such auditor or any other person or to put another person to a disadvantage or loss or for a material consideration, the auditor shall, in addition to the penalty provided by that sub-section, be punishable with imprisonment for a term which may extend to one year and with fine which may extend to one hundred thousand rupees.