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MCA set to regulate cost auditors, cap reports at 50

Finding shortcomings in the cost audit and compliance reports of both private and public sector companies in the last few years, the ministry of corporate affairs is set to regulate both the fees of cost auditors and the number of compliance reports each of them can sign.

Finding shortcomings in the cost audit and compliance reports of both private and public sector companies in the last few years, the ministry of corporate affairs (MCA) is set to regulate both the fees of cost auditors and the number of compliance reports each of them can sign. The MCA is working on a proposal to cap the number of compliance reports by a cost auditor to 50 or less. Currently, there is no such limit on practicing cost accountants and they are free to give unlimited cost audits and compliance reports.

?The examination of cost audit reports of previous few years show that in large number of cases, the quality of reports are not satisfactory or up to the expected level. Similar shortcomings have been observed by many government agencies. This poses a serious problem with the regulators and other user agencies who use these reports as key inputs in their decision making process,? said a senior official.

MCA says the move is aimed at reducing the concentration of power in the hands of few cost accountants. These changes are proposed to be implemented from January 1, 2013.

At present, under Section 209 1D of the Companies Act, cost auditing is mandatory on most classes of companies. Earlier, this clause covered 44 industries where any company with a turnover of over R10 crore was required to prepare and maintain cost records. However, in June 2011, the MCA made it mandatory for almost all domestic and foreign companies functioning in India to maintain cost records.

The Institute of Cost Accountants of India (ICWAI) defines cost audit as an independent examination of cost and other related information in respect of a product or group of products of an entity (whether profit oriented or not), when such an examination is conducted with a view to expressing an opinion thereon.

Now ICWAI have been asked to suggest a fee structure for cost audit compliance at the earliest. The move to cap the number of compliance reports for cost accountants stems from a similar directive issued for chartered accountants (CAs) and company secretaries (CS). Institute of Company Secretaries of India has imposed a ceiling of 50 compliance certificates for each practicing company secretary under Section 383A of Companies Act, 1956 and 30 certificates for signing of annual returns under Section 161 of Companies Act.

Similarly, in 2007, the Institute of Chartered Accountants of India imposed a limit of 45 per member or per partner of a firm for undertaking tax audits.

Welcoming the move, Ved Jain, past-president of ICAI said: ?It is a good move. It will prevent concentration of cost auditing powers in the hands of a few. Since a similar restriction exists on CAs, this will help the practice of cost audit accountancy too.? Speaking on the violations of these diktat, Jain said: ?Violations are taken very seriously. They amount to breach of professional conduct where a CA, CS or a cost auditor may lose the licence.?

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First published on: 19-12-2012 at 03:27 IST
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