INTERNAL AUDIT AND COST AUDIT

(UPDATE: on 30^th August 2013: Companies Bill became the Companies Act, 2013 (Act 18 of 2013).

In this series of my blog post related to Companies Bill, 2012; I am writing this post about provision relating to internal and cost audits. The manner of appointment of auditors may affect independence of cost audit and good corporate governance. The bill addresses this issue very well.

INTERNAL AUDIT (SECTION 138):

Internal Audit is one most important tool for better Corporate Governance in any company. This is not a post – mortem like statutory audit, but may provide real time analysis and processing of transactions through watchful eyes.

This section read, “ Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a chartered accountant or a cost accountant, or such other professional as may be decided by the Board to conduct internal audit of the functions and activities of the company. The Central Government may, by rules, prescribe the manner and the intervals in which the internal audit shall be conducted and reported to the Board.”

COST AUDIT (SECTION 148):

The cost audit is not applicable to all companies but to select few.

Cost Record (Sub – section 1):

The central government may by order, in respect of such class of companies producing such goods or providing such services as prescribed direct that direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies.

Cost Audit (Sub – Section 2, 3, 4, 6 and 7):

The Central government may by order direct that the audit of cost records of class of companies, which are covered under sub-section (1) and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted in the manner specified in the order.

The cost audit shall be conducted by a Cost Accountant in practice who shall be appointed by the Board on such remuneration as may be determined by the members.

The auditor conducting the cost audit shall comply with the cost auditing standards.

The company shall within thirty days from the date of receipt of a copy of the cost audit report) furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein.

If, after considering the cost audit report and the information and explanation, the Central

Government is of the opinion that any further information or explanation is necessary, it may call for such further information and explanation and the company shall furnish the same within such time as may be specified by that Government.

Qualification Right and duties of cost auditor (Sub – section 5):

The qualifications, disqualifications, rights, duties and obligations applicable to auditors shall, so far as may be applicable, apply to a cost auditor and it shall be the duty of the company to give all assistance and facilities to the cost auditor appointed under this section for auditing the cost records of the company. I have discussed these in my earlier post  Auditor under Companies Bill 2012: from appointment to removal.

PUNISHMENT FOR CONTRAVENTIONS ( Sub – section 8):

Provision of Section 147 of the act as discussed in my post auditor and auditor’s report: duties, power, penalties are also applicable here in case of cost audit.

POWER AND DUTIES OF COST AUDITORS (Section 143):

As per sub section 14 of the Section 143, the power and duties of cost auditors are same as statutory auditors. I have discussed these in my earlier post auditor and auditor’s report: duties, power, penalties.

Please note blog post is not a professional advice but general information about the subject covered here. I appreciate if my readers share this post on social media and with friends and colleagues.