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Limit cost accounting norms to essential goods units: CII
January, 28th 2008
All industries that are outside the ambit of the Essential Commodities Act 1955 should be exempted from the Cost Accounting Rules notified under the Companies Act with immediate effect, recommended the Confederation of Indian Industry (CII).

According to the industry association, the scope of cost record rules may be limited to industries that produce essential goods, since intense competition due to globalisation and removal of the license raj ensures that the industry produces and markets its quality output efficiently and cost effectively.

CII said that Section 209(1)(d) of the Companies Act 1956 provides maintenance of cost records for various industries. Currently, 44 industries have been mandated to maintain cost accounting records including details about production quality control, raw material consumption, R&D expenses, export obligation, royalty payments, fixed assets and depreciation. The association said it is important that the need for regulation in a particular industry be considered while notifying that industry for mandatory maintenance of cost records.

Maintaining records

Maintenance of cost accounting records entails a huge cost for companies in terms of time and money since they are required to be maintained in a very minute and detailed manner. CII said that details of all components of cost have to be included even though they may be insignificant. Maintenance of cost records is difficult for companies that produce multiple commodities, as actual consumption records have to be maintained for power, fuel and utilities per unit of production for each type of product. Moreover, non-application of these rules to traded imported goods puts the local industry at an unfair cost disadvantage, by unnecessarily increasing its transaction costs.

Reasons for recording

The apparent reasons for cost accounting are the grant of subsidies and the protection of Government revenues. Moreover, Government revenue is more than adequately assured by the Central Excise and Income tax laws. E-governance in this sector has also brought about a lot of transparency for revenue collection, stated CII.

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