Duties & Power of cost auditor

  • Post last modified:20 April 2021
  • Reading time:10 mins read
  • Post category:Finance
Coursera 7-Day Trail offer

Duties of cost auditor

The Companies Act, 1956 does not mention duties of a cost auditor clearly. Section 233B(4) states that the cost auditor shall have the same powers and duties as the financial auditor in relation to an audit of cost accounts.

A cost auditor has to perform the duties as per the provision in the Companies Act and in addition to this he has to perform the duties as per the provisions mentioned in the Cost and Works Accounts Act, 1959 because these provisions are used by the Institute of Cost and Works Accounts of India to regulate the profession of cost accountancy in India.

The duties of cost auditor can be divided in two groups as under:

  • Statutory duties
  • General duties

Statutory duties of a cost auditor

  • Duty to conduct cost audit and prepare a cost audit report: Once a cost accountant is appointed by a company to do the audit of the cost accounts books and other cost records, it becomes a duty of the cost auditor to undertake and complete the cost audit of the company.

    After completing the cost audit, he is required to prepare a cost audit report in the prescribed format and submit it to the Central Government with a copy of it to be forwarded to the company, within a period of one hundred and eighty days from the close of the company’s financial year to which the report relates.

  • Duty to furnish information in the cost audit report as per rules and provisions: A Cost auditor should furnish information in his audit report, in compliance with the Cost Audit Report Rules in force, and ensure that full and complete details of cost accounts have been included in the cost audit report prepared by him.

    It is his duty to give his observations, comments, qualification and reservations in his cost audit report and he should enclose the required anexures to the cost audit report.

  • Duty to submit a compliance report: As per the amended Cost Accounting Record Rules, 2011 and Cost Audit Report Rules, 2011. a Cost auditor is required to submit the Compliance Report in the required format and duly signed by him to the Central Government.

  • Duty to make enquiries: It is the duty of cost auditor to make necessary enquiries into substantial accuracy of cost matters to ascertain the true and fair position.

  • Duty to attend Audit Committee / Board meetings: Sub-section (6) of section 292A of the Companies Act, 1956 states that the Audit Committee should have periodical discussions with the cost auditor about the suggestions made in the cost audit report for implementation whenever cost audit has been directed under section 233B of the Companies Act, 1956.

    The presence of the cost auditor in such committees will ensure overall cost management, efficiency in resource utilization, business vertical-wise performance evaluation, proper pricing of inter-unit/inter-company transfers and valuation of inventories.

    However, the Cost auditor, wherever appointed, shall attend and participate at the meetings of the Audit Committee or the Board, as the case may be, but shall not be a member nor have the right to vote.

  • Duty to give clarifications to the Central Government: Every cost auditor, who submits a report under sub-rule (1), shall also give clarifications, if any, required by the Central Government on the cost audit report submitted by him, within thirty days of the receipt of the communication addressed to him for such clarifications.

  • Duty to assist inspectors: It is the duty of the cost auditor to preserve and produce for an inspector all cost accounts books and other cost records of the company which are in his possession. The cost auditor shall also give all assistance to the insepctor in connection with the investigation. (Section 240 (1)).

  • Duty to the profession under the Cost and Works Accountants Act, 1959: By making certain provisions in the CWA Act, the institute seeks to control the profession of cost accountants in India.

    These provisions state which activities and behaviour of cost accountant shall be treated as misconduct on the part of a cost accountant. The cost accountant appointed for cost audit work of a company shall ensure that he does not become liable for misconduct under the Act.

    A cost auditor should also keep his certificate of practice valid while doing the cost audit of the company.

General Duties of a Cost Auditor

  • A cost auditor should do the cost audit work as a professional person. He is expected to take proper care while doing the cost audit and should certify only those records and reports which he believes to be true.

    He should make use of his professional skill and do the examination and verification of the cost accounts books and other records of costs in a competent manner.

    Since the Central Government and management of the company relies on his reports for taking important decisions, the cost auditor should take due care while including any data, observations and comments in his cost audit report.

  • While performing cost audit of a company the cost auditor gets important and confidential data about the company. It is the duty of a cost auditor to maintain the secrecy and confidentiality of such data.

    He should not provide confidential data to any person who is not entitled to obtain it. He should not misuse such data for his or for any outsider’s personal benefit.

  • A Cost auditor should believe in the honesty of the officers and employees and should accept the data provided by them as correct and true. Unless there is some reason to be suspicious, such data should be regarded by him as true and valid.

    But it is the duty of a cost auditor to investigate any such matter, in detail, if he has a ground to be suspicious about the correctness of it.

  • It is the duty of a cost auditor to protect the interests of certain sections of society. A Cost auditor should ensure that the cost of production or cost of providing a service to the customers is calculated properly and if a business enterprise is exploiting the consumers by overcharging the price of the product or a service, it is the duty of the cost auditor to point it out to the appropriate authority.

Power of Cost Auditor

A cost auditor has got the same powers and duties in relation to an audit conducted by him under section 233B as an auditor of a company under section 227 (1) The provisions relating to a cost auditor’s rights include the following rights :

  • Right of access to books of accounts and other records: Every auditor of a company shall have the right of access at all times to the books of accounts and vouchers of the company whether kept at the head office of the company or elsewhere. He has a right to inspect books of accounts, vouchers, reports, statements, etc. This right is absolute and unconditional and it cannot be restricted by the company by making a provision in its articles of association.

  • Right to call for information and explanations: Every auditor has a right to obtain all information and explanation necessary for his audit work and he has the right to call for such information and explanation from any officers of the company.

  • On being oppointed as the cost auditor of the company he has a right to receive all the facilities from the company which he requires for doing the work of cost audit. He has a right to ask for any assistance needed by him for carrying out the work of cost audit assigned to him by the company.

  • Right to visit branches: If the company whose cost audit is assigned to him, has any branches, the cost auditor has a right to visit the branches for inspection of the cost accounts books and other cost records maintained at the branches, if the cost auditor thinks that it is necessary to do so in connection with his cost audit work.

  • Right to report: The cost auditor has a right to communicate with the Board of Directors and the Central Government to submit his comments and reports related to his cost audit work.

  • Right to receive notice of the annual general meeting and to attend such meeting : As per the directions of the Central Government the cost auditor of the company has a right to receive notice of the annual general meeting and attend such meeting.

  • Right to sign the cost audit report: After completing the cost audit of the company the cost auditor prepares the cost audit report. The cost auditor has the right to sign such cost audit report before submitting it to the Central Government.

  • Right to claim remuneration: The appointment of a cost auditor is done by the company for cost audit work and the company agrees to pay a certain amount to the cost auditor for his work. On completion of the cost audit if any balance of remuneration is still payable to the cost auditor, he has a right to claim such remuneration due to him from the company.

  • Right to retain working papers: While doing the cost audit the cost auditor prepares some documents, statements, reports, etc. which are collectively known as the working papers prepared by the cost auditor. Cost auditor has a right to retain the working papers with him.

  • Right to seek advice: While performing the cost audit of the company the cost auditor may feel that he needs legal or technical advice from the experts in these fields for doing cost audit work properly. The cost auditor has a right to seek advice from the experts.

Leave a Reply