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Industry rises against mandatory cost audits, but government firm
PrintIndian businesses have opposed mandatory cost audits proposed in draft rules prepared by the ministry of corporate affairs (MCA), saying that the companies are conscious about cost structures and such checks shouldn't be made compulsory. But the ministry is unlikely to be swayed on the subject.
Some companies are concerned that the information revealed through such audits could be used by rivals, eroding their competitive edge.
The Confederation of Indian Industry (CII) said in a letter to the ministry that cost audits should be the prerogative of boards, arguing that the maintenance of cost records should be according to a company's requirements. CII confirmed that it had written to the ministry last week.
"Industry has been reiterating that mandatory maintenance of cost records or prescribing their audit does not serve any purpose," said Kris Gopalakrishnan, CII president and InfosysBSE 1.64 % executive vice-chairman.
MCA made cost audits mandatory for manufacturing units in sectors such as cement, tyres, steel, fertilisers, bulk drugs and telecommunications in May 2011.
This is not the first time industry has opposed cost audits; it has been doing so since 2007, when the corporate affairs ministry included the proposal as part of the Companies Bill, which was passed by Parliament this year.
The ministry is unlikely to accede to the demand.
"We have received the views. We will take the suggestions on their merits but the law will not change as it stands today," a senior ministry official told ET.
"Industry has been reiterating that mandatory maintenance of cost records or prescribing their audit does not serve any purpose," said Kris Gopalakrishnan, CII president and InfosysBSE 1.64 % executive vice-chairman.
MCA made cost audits mandatory for manufacturing units in sectors such as cement, tyres, steel, fertilisers, bulk drugs and telecommunications in May 2011.
This is not the first time industry has opposed cost audits; it has been doing so since 2007, when the corporate affairs ministry included the proposal as part of the Companies Bill, which was passed by Parliament this year.
The ministry is unlikely to accede to the demand.
"We have received the views. We will take the suggestions on their merits but the law will not change as it stands today," a senior ministry official told ET.
Industry is concerned that such audits will lead to benchmarking of cost data and this may lead to the targeting of those who diverge from these parameters. These fears are groundless, said the official.
The need for mandatory cost audits has been brought up since 1965. The cost-pricing mechanism helps accountants determine a company's margins through the audit of all inputs such as raw materials, labour, power and product prices. The data is even more crucial in cases where the government wants to curb profiteering.
While companies have declared their opposition to the mechanism, cost accountants on the other hand have actually been complaining that the new rules act as a curb on their activities and have sought to lobby the ministry for changes. (Economic Times)
The need for mandatory cost audits has been brought up since 1965. The cost-pricing mechanism helps accountants determine a company's margins through the audit of all inputs such as raw materials, labour, power and product prices. The data is even more crucial in cases where the government wants to curb profiteering.
While companies have declared their opposition to the mechanism, cost accountants on the other hand have actually been complaining that the new rules act as a curb on their activities and have sought to lobby the ministry for changes. (Economic Times)
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