Cost audit is Cost audit is an examination of cost accounting records and verification of the facts to ascertain that the cost of the product under reference has been arrived at in accordance with principles of Cost Accounting and evaluation of adequacy of proper Cost Accounting Records and their maintenance. The cost audit is performed by an independent. Professionally qualified Cost and Management Accountant or Chartered Accountant. Cost audit is carried out to evaluate cost performance of the entity for which Cost Accounting Record have been prescribed by the Securities and Exchange Commission of Pakistan (SECP). The Cost Auditor, therefore, carries out such tests and makes such inquiries which enable him to give a professional, independent, unprejudiced opinion on the cost performance of the entity, as reflected in the cost information provided in the schedules and annexes which are prepared by the entity in accordance with the cost accounting records maintained.
The Companies Ordinance 1984 while providing for the books of accounts to be kept by a company under Section 230, makes an additional provision in sub-section (1) (e) of that Section which reads:
“In the case of company engaged in production; processing, manufacturing or mining activities, such particulars refating to utilization. of material or Iabour or to other inputs or items of cost as may be prescribed. if such crass of companies is required by the authority by a general or special order to include such particulars in the books of accounts”
The Companies Ordinance 1984 provides for Audit of Cost Accounts vide Section 258 which reads:
“258 Audit of Cost Accounts (1) where any company or rass of companies is required’under clause (c) of subsection (1) of Section 230 to incCrufein its 600~ of account the particulars referred’to therein, tlie Peaera[ government may direct that on audit of cost accounts of the company staff be conducted in such manner and wliicli sucli stipulation: as may be specified’ in the order by on auditor who is a chartered’accountant within the meaning of the Cliarterea accountants Ordinance, 1961 (X of 1961), or a cost and management accountant within the meaning of the Cost and Management Accountants act, 1966 (XIV of 1966) and such auditor shall five the same powers, duties anti Libraries as in auditor of a company anti such powers, duties anti libraries as may be prescribed.”
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 1998-98 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 annex given in the relevant cost accounting record orders/rules Companies (Audit of Cost Accounts) Rules 1998 have been published as Appendix 1.
Cost Accounting Records Orders
Under Sub-section (l)(c) of Section 230 of the Companies Ordinance 1984, the SECP (former Corporate Law Authority) framed the Vegetable Ghee and Cooking Oil Companies (Cost Accounting Records) Order, 1990 which came into force as from 1st January 1991: subsequently the “Cement Industry (Cost Accounting Records) order 1994 and Sugar Industry (Cost Accounting Records) Order, 2001 were framed by SECP which came into force from l” July 1994 and 13th February 2001 (Appendix III, IV and V), Under these three Orders, Vegetable Ghee and Cooking Oil Companies, units of Cement Industry and Sugar Industry are required to maintain cost accounting records to provide cost accounting information in a verifiable form, required to fill in the schedules and annexes prescribed in these orders. Other industries may be brought within the ambit of Cost Audit as and when relevant Cost Accounting Record Orders are issued.