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Govt to scrap cost audit in select sectors
August, 17th 2007
The government is set to exempt a host of industries in the manufacturing sector from mandatory cost audits. The sensitive operational details of industries that are set to go off the governments penetrating gaze include synthetic textiles, engineering, power transmission and distribution, chemicals, cosmetics, all electronic products and telecommunication gadgets.

The ministry of corporate affairs is planning to retain only those industries that produce essential commodities within the purview of cost record-keeping and its mandatory audit by government-approved cost auditors. A formal decision, however, will be taken after a panel looking into the proposed overhaul of cost accounts record-keeping rules submits its report. The panel is also understood to be working in this direction.

The rationale behind the move is that in a deregulated, free and competitive market, corporate houses themselves are very conscious of their cost of production, quality control, raw material consumption and capacity utilisation.

The government need not keep an eye on it long after the end of licence-permit raj. However, in sectors like cement and pharmaceuticals, where the regulator needs cost data for pricing decisions, cost audits will continue.

In other sectors, competition in the market will take care of the consumers interest. Besides, investors are concerned only about the financial information of companies and not their cost data, said a source.

Continuing with the requirement of cost audits can only keep the compliance cost of the corporate sector high. In addition, companies are required to make the necessary disclosure that stakeholders are keen to know under the Companies Act. Other industries likely to be exempt from cost-auditing are industrial alcohol, rayon, dyes, soda ash, polyester and nylon chips, fibre and yarn, footwear, soaps and detergents, mining and metallurgy, plantation, electric lamps, motors, fans, cycles, air conditioners and refrigerators.

Under the Company Law, companies in 44 declared sectors are expected to maintain all details about production, including quality control, raw material consumption, R&D expenses, export obligation, royalty payments, fixed assets and depreciation.

When the government orders a mandatory audit, they should get these details audited by a government-approved auditor. Last year, the government ordered audit into the records of 12 public sector oil giants, including Gail India, HPCL, IOC, BPCL and ONGC, apparently in a bid to find out how true their claims of under-realisation or selling petroleum products below their cost price are.
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