Particulars to be Included in Cost Auditors Report to the Directors of the Company Auditing Help

1. Capacity – (a) Licensed, installed and utilized capacities of the factory of factories for the products under reference.

(b) If the company is engaged in other activities besides the manufacture of the product under reference, give a brief note on the nature of such activities.

2. Cost accounting system – Brief comments on the cost accounting system and its adequacy or otherwise to determine correctly the cost of the product under reference.

3. Production – (a) Production in quantities of each type of product under reference.

(b) Percentage of production of the product under reference in relation to installed capacity. If there is any shortfall in production as compared to the installed capacity, brief comments as to the reasons for the shortfall.

(c) If there is any addition to the production capacity during the year
under review or in the immediately preceding two years, this may also be mentioned.

4. Raw materials – (a) The cost of major raw material consumed both in terms of quantity and value. Where the cost of transport, etc., of raw material is significant, specify the same separately.

(b) Consumption of major raw material per unit of production compared with the standard requirements, if any.

(c) Explanations for variances, if any, in the consumption of major raw material per unit of production as compared to the preceding two years, and with standard requirement, if any.

(d) Comments on the method of accounting followed for recording the quantities and value of receipts, issues and balances of material directly used in production

5. Wages and salaries – (a) Total wages and salaries paid for all categories of employees, separately in respect of each of following namely:

(i) direct labour costs on production;
(ii) indirect employees cost on production;
(iii) employees cost on administration.
(iv) employees cost on selling and distribution;
(v) bonus to workers and employees;
(vi) other employees cost, if any (including taxes and levies); and
(vii)total employees cost (total of items (i) to (iv) above).

(b) Salaries and perquisites of directors and chief executive.

(c) Total man-days of direct labour available and actually worked for then year.

(d) Average number of workers employed for the year.

(e) Direct labour cost per unit of output of the product (give information in respect of each).

(f) Brief explanations for variances in item (c) above, if any, as compared to the previous two years.

(g) Comments on the incentive schemes, if any, with particular reference to in contributions towards increasing productivity and its effect on cost of production.

6. Stores and spare parts – (a) The expenditure per unit of output on stores, etc.

(b) Comments on the system of stores accounting for recording receipts, issues and balances, both in quantities and values.

(c) If practicable, the proportion of closing inventory of stores representing items which have not moved for over twenty four months.

7. Depreciation – (a) The method of depreciation adopted by the company, e.g. straight line or diminishing balance, etc.

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

(c) The basis of charging depreciation to the cost of products.

8. Overheads – (a) The total amounts of the following overheads and break-up of items (i), (ii) and (iii) below:-

(i) Factory overheads,
(ii) Administration overheads,
(iii) Selling and distribution overheads,
(iv) Financial charges.

(b) Reasons for any significant variances in the expenditure incurred
against the item, included in overheads as compared with previous two years.

(c) The basis of allocation of overheads to cost centres and of absorption to products with brief comments, if any, on the basis of allocation adopted by the company.

(d) Cost of packing, if any, of the products under, reference to be shows separately with details to the extent possible.

9. Royalty/technical aid payments – The total amount of royalty/technical aid fees payable for the year and the amount chargeable per unit of product.

10. Abnormal non-recurring features. – (a) If there were any abnormal features affecting production during the year, e.g. strikes, lock-outs, major breakdowns in the plant, substantial power cuts, serious accidents, etc., they shall, wherever practicable, be bridle mentiored indicating their impact on the cost of production.

(b) If there are any special expenses which have been directly allocated to products under reference, the total amount as also the incidence per unit of product shall be shown.

11. Cost of production – The cost per unit of different categories, varieties, or qualities of each of the products under reference with comparative figures for the previous year and comments on the reasons of difference.

12. Sales – (a) The sales in question and net sales realization of the
difference categories, varieties of quantities of product under reference showing the average sales realization per unit.

(b) If product under reference is exported, quantity exported, net realization per unit, countries to which exported indicating the profit or loss incurred in export.

13. Profitability – The profit per unit earned on each category, variety or quantity of the product, comments on the comparative profits of different categories of the products per unit as well as in term of per machine hour, etc., and comments on the adequacy or otherwise of product for maximization of profit.

14. Cost auditors observation and conclusion – (a) Matters which appear to him to be clearly wrong in principle or apparently unjustifiable.

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

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

(d) (i) The adequacy or otherwise of budgetary control system, if any, in vogue in the company; and
(ii) The Scope and performance of internal audit, if any,

(e) Suggestion for improvements in performance, e.g. by:-
(i) rectification of general imbalance in production facilities;
(ii) future utilization of installed capacity;
(iii) comments on areas offering scope for:-
(a) cost reduction;
(b) increased productivity;
(c) key limiting factors causing production bottle-necks;
(d) improved inventory policies; or
(e) energy conservancy;
(iv) state of technology, whether modem or obsolete; and
(v) plant, whether new or second-hand were installed.

15. Reconciliation with financial account – After the auditor appointed under section 252 of the Companies, Ordinance, 1984, submits his report, the cost auditor shall submit a supplementary report on reconciliation with financial accounts, to the directors before the date fixed for holding the annual general meeting of the company.

16. Cost statement – Copies of all the cost statement on the formats prescribed by the Corporate Law Authority under clause (e) of subsection 230 of the Companies Ordinance, 1984, duly authenticated by the chief executive and chief accountant of the company, and verified by the cost auditor, shall be appended to the report.

17. Miscellaneous – As far as practicable, comparison of all figures of cost and production shall be made the figures of previous year.

Posted on November 4, 2015 in Cost Audit

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