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Companies (Auditor's Report)(Amendment) Order, 2004 - Clause 4(viii)

Written By Admin on Sunday, 1 April 2012 | Sunday, April 01, 2012

Clause  4(viii)

where maintenance of cost records has been prescribed by the Central Government under clause (d) of sub-section (1) of section 209 of the Act, whether such accounts and records have been made and maintained.

1) Section 209 (1) (d) of the Act requires a company pertaining to a class of companies engaged in production, processing, manufacturing or mining activities to maintain proper books of account showing particulars relating to
utilization of material or labour or to other items of cost as may be prescribed, if the Central Government requires such class of companies to maintain such records. Pursuant to this requirement and in exercise of the powers conferred by sub-section (1) of section 642 of the Act, the Central Government has made rules in respect of a number of classes of companies. These books of account and records form part of the books of account of the company within the meaning of section 209.

2) The Cost Accounting Records Rules issued for various industries contain requirements relating to two matters:

(i) maintenance of proper books of account relating to materials, labour, and other items of cost; and
(ii) preparation of cost statements at the end of the financial year in accordance with the rules specific to the industry concerned. While the records relating to materials, labour, etc., are required to be maintained on a day-to-day basis, the cost statements have to be prepared periodically.

3) Section 233B of the Act provides that where, in the opinion of the Central Government, it is necessary to do so in relation to any company required by section 209(1)(d) to maintain the particulars prescribed under that section, it may order an audit to be conducted of its cost accounts.
4) It will be noticed that while a cost audit can be done only in respect of companies governed by the Rules made under section 209(1)(d), cost audit is not necessary in respect of every company which is required to maintain cost records.
5) The Order requires the auditor to report whether cost accounts and records have been made and maintained. The word “made” applies in respect of cost accounts (or cost statements) and the word “maintained” applies in respect of cost records relating to materials, labour, overheads, etc. The auditor has to report under the clause irrespective of whether a cost audit has been ordered by the Central Government. The auditor should obtain a written representation from the management stating (a) whether cost records are required to be maintained for any product(s) of the company under section 209(1)(d); and (b) whether cost accounts and records are being made and maintained regularly. The auditor should also obtain a list of books/records made and maintained in this regard. The Order does not require a detailed examination of such records. The auditor should, therefore, conduct a general review of the cost records to ensure that the records as prescribed are made and maintained. He should, of course, make such reference to the records as is necessary for the purposes of his audit.

6) It is necessary that the extent of the examination made by the auditor is clearly brought out in his report. The following wording is, therefore, suggested:

“We have broadly reviewed the books of account maintained by the company pursuant to the Rules made by the Central Government for the maintenance of cost records under section 209(1)(d) of the Companies Act, 1956 and are of the opinion that prima facie, the prescribed accounts and records have been made and maintained.”
7) Where the auditor finds that the records have not been written up or are not prima facie complete, it will be necessary for the auditor to make a suitable comment in his report.
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