ACMA

Unit I:

Cost Concepts And Analysis

Cost Concepts

Accounting and Economic Costs

When a firm starts producing goods, it has to pay the price for the factors employed for the production. These factors include wages to workers employed, prices for the raw materials, fuel and power used, rent for the building he hires, and interest on the money borrowed for doing business, etc.

Accounting Costs are these costs which are included in the cost of production. Hence, accounting costs take care of all payments and charges that the firm makes to suppliers of different productive factors.

Usually, a businessman invests some capital in his firm. If he would have invested the amount in some other firm, then he could have earned a certain interest/dividend. Further, he invests time for his business and also contributes his entrepreneurial and managerial ability to the business.

If not involved in the business, he could have offered his services to other firms for an amount of money. Accounting costs DO NOT involve these costs. They form a part of the Economic Costs. Hence, Economic costs include:

• The normal return on the money that the businessman invests in his own business

• The salary not paid to the entrepreneur but could have been earned if the services would have been sold elsewhere.

• A reward for all factors owned by the businessman and used in his own business.

Therefore, the accounting costs involve cash payments that the firm makes. Economic costs, on the other hand, include the accounting costs and also take into account the amount of money the businessman could have earned with his resources if he would not have started the business.

Another name for accounting costs is Explicit Costs. Whereas, the alternate name for the costs of factors that the businessman owns is Implicit Costs. A businessman earns profits when his revenues exceed both explicit and implicit costs.

Outlay and Opportunity Costs

Outlay costs include the actual expenditure of funds on factors like material, rent, wages, etc. On the other hand, opportunity costs are the costs of missed opportunities. In other words, it compares the policy chosen and policy rejected.

Outlay cost concepts are actual expenditures and the books of accounts record them. Opportunity costs are about sacrificed opportunities and the books of accounts do not record them.

These costs are very useful. For example, if a cloth mill spins its own yarn, the opportunity cost of yarn to the weaving department is the price at which the yarn sells. This is used for measuring the profitability of the weaving operations.

Direct or Traceable Costs and Indirect or Non-Traceable Costs

Direct costs – costs which are easily identifiable and traceable to a particular product, operation or plant. For example, manufacturing costs are direct costs since they can be related to either a product line or territory or customer class, etc. Ensure that you know the purpose of the cost calculation before determining if a cost is direct or indirect.

Indirect costs – costs which are not easily identifiable or traceable to specific goods, services, operations, etc. These costs bear some functional relationship to production and may vary with the output. For example, costs related to electric power and the common costs incurred for the general operation of the business benefitting all products.

Fixed and Variable Costs

Fixed costs or Constant costs are not a function of the output. That is, they do not vary with the output up to a certain extent. They require a fixed expenditure of funds regardless of the output.

For example, rent, property taxes, interest on loans, etc. However, note that fixed costs can vary with the size of the plant and are usually a function of capacity. Therefore, we can conclude that fixed costs do not vary with the output volume within a capacity level.

Businesses cannot avoid fixed costs and are applicable as long as the business is operating. Alternate names for fixed costs are inescapable or uncontrollable costs.

It is important to note here, that some fixed costs continue even after the suspension of business. For example, costs associated with storing of machines that the business cannot sell in the market, etc.

Variable costs are cost concepts which are a function of the output in the production period. Variable costs vary directly with the output. Some examples of variable costs are the cost of raw materials, wages, etc. Sometimes, they vary proportionally with the output too. However, these variations depend on the utilization of fixed facilities and resources during the production process.

1. What Is Relevant Cost?

Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making specific business decisions. The concept of relevant cost is used to eliminate unnecessary data that could complicate the decision-making process. As an example, relevant cost is used to determine whether to sell or keep a business unit.

The opposite of a relevant cost is a sunk cost, which has already been incurred regardless of the outcome of the current decision.

Example of Relevant Cost

Assume, for example, a passenger rushes up to the ticket counter to purchase a ticket for a flight that is leaving in 25 minutes. The airline needs to consider the relevant costs to make a decision about the ticket price. Almost all of the costs related to adding the extra passenger have already been incurred, including the plane fuel, airport gate fee, and the salary and benefits for the entire plane’s crew. Because these costs have already been incurred, they are "sunk costs" or irrelevant costs.

The only additional cost is the labor to load the passenger’s luggage and any food that is served mid-flight, so the airline bases the last-minute ticket pricing decision on just a few small costs.

Types of Relevant Cost Decisions

Continue Operating vs. Closing Business Units

A big decision for a manager is whether to close a business unit or continue to operate it, and relevant costs are the basis for the decision. Assume, for example, a chain of retail sporting goods stores is considering closing a group of stores catering to the outdoor sports market. The relevant costs are the costs that can be eliminated due to the closure, as well as the revenue lost when the stores are closed. If the costs to be eliminated are greater than the revenue lost, the outdoor stores should be closed.

Make vs. Buy

Make vs. buy decisions are often an issue for a company that requires component parts to create a finished product. For example, a furniture manufacturer is considering an outside vendor to assemble and stain wood cabinets, which would then be finished in-house by adding handles and other details. The relevant costs in this decision are the variable costs incurred by the manufacturer to make the wood cabinets and the price paid to the outside vendor. If the vendor can provide the component part at a lower cost, the furniture manufacturer outsources the work.

Factoring in a Special Order

A special order occurs when a customer places an order near the end of the month, and prior sales have already covered the fixed cost of production for the month. If a client wants a price quote for a special order, management only considers the variable costs to produce the goods, specifically material and labor costs. Fixed costs, such as a factory lease or manager salaries, are irrelevant because the firm has already paid for those costs with prior sales.

2.Pricing decisions:

Pricing decisions are the choices businesses make when setting prices for their products or services.

Pricing is considered part of a company’s marketing strategy because it influences its relationship with customers: When prices are fair and competitive, customers come back, increasing the profitability of the business.

Pricing decisions can be simple or complex.

• Simple pricing involves charging what competitors charge for similar goods and services. This strategy is often used by retailers and wholesalers selling commodities. Companies that make simple pricing decisions often try to increase sales by making small, competitive adjustments such as purchase discounts, volume discounts and purchase allowances.

• Complex pricing is based on the originality of a product or service and what customers are willing to pay for it. This type of pricing is determined through negotiation with the customer and is common for custom furniture, artworks and consulting services.

More about pricing decisions

Whether pricing strategy is simple or complex, a business must:

• Understand its customers and how price influences their purchasing decisions

• Know what competitors are offering and what they charge for their products and services

• Adjust quickly to changes in markets, vendors and customers

• Help customers understand why its products or services are priced as they are

• Be able to negotiate with wholesalers, retailers and other suppliers and resellers

• Track how pricing affects sales

3.Objectives of Pricing:

The main objectives of pricing can be learnt from the following points −

• Maximization of profit in short run

• Optimization of profit in the long run

• Maximum return on investment

• Decreasing sales turnover

• Fulfill sales target value

• Obtain target market share

• Penetration in market

• Introduction in new markets

• Obtain profit in whole product line irrespective of individual product profit targets

• Tackle competition

• Recover investments faster

• Stable product price

• Affordable pricing to target larger consumer group

• Pricing product or services that simulate economic development

Unit IV:

BUDGETARY CONTROL

Behavioural Aspects of Budgeting:

Budgetary Control

Budgetary control implies the existence of a predefined budgetary standard and subsequent feedback mechanism to support the evaluation and possible correction of actual performance. 

A budget is a way of delegating authority. They don’t reflect reality, they should be viewed as

a forecast.

Any budgetary control system set up should ensure that:

• Allowing managers to set their own targets improves motivation, commitment and performance

• The environment the business operates in, is fully understood;

• The business develops an appropriate culture;

• The role of the budget in terms of its fit with the strategic plan is clearly understood;

• A culture of value-adding is developed

Necessary Conditions for Budgetary Control:

• A serious attitude from all levels of management

• Clearly defined areas of managerial responsibility

• Reasonable budget targets (focus on achievability)

• Established data collection, analysis and distribution

• Specific rather than general-purpose reporting

• Fairly short reporting periods (e.g. monthly)

• Timely variance reports made available to managers

• Action taken to regain control

Unit V:

Management Information System

1. What is MIS?

Ans: In order to understand the scope of MIS and nature of management, we first need to understand what is MIS. Management Information Systems helps firms in realizing maximum profits on their investments. The whole system is designed with the aim of enhancing profits, exercising better control and performance planning at all levels. Information systems are used at all the levels of a business organization in order to collect, process or store data. However, this gathered information needs to be carried out in an efficient manner which actually helps in business growth. So, MIS professionals create information systems for data management. They manage the various information systems in such a way that it is able to meet the needs of management, staff as well as clients. MIS professionals play a critical role in areas of information security, integration as well as exchange.  

2.Write the Nature of Management Information System ?

Ans: Nature of Management Information System

Management Information Systems (MIS) can be simply referred to as a system or process that facilitates the smooth working of the organisation. The nature of MIS is truly multifold because it plays a bigger role in business decisions, from costs to employee management. Here are the major features that portray the nature of MIS:

• MIS is utilised by every level of a management.

• It clarifies and focuses on the strategic goals and objectives for the management.

• MIS provides an effective system to analyse costs and revenues and further reviews effectively and efficiently to bring a balanced in finances and costs.

• MIS is maintained either through manual systems or automated systems or a combination of both.

• It also plays a incremental role in identifying, locating, measuring, tackling and limiting risks.

• It lays down a framework of rules and regulations for the management to bring a clear and concise communication between employees.

• MIS provides an objective system of collecting, assessing and aggregating information for a business.

3. Write the Scope of MIS ?

Ans: Scope of MIS:

After understanding what is MIS and the nature of management, we move on to the scope of MIS. Information Systems is growing at a fast pace to become one of the most promising career fields in today’s world. With everything happening digitally, the demand for MIS professionals is increasing more than ever. MIS involves performing a number of task simultaneously such as- 

• Processing data

• Initiating transactions

• Responding to inquiries

• Producing reports and its summaries

• Manage the data created within the structure of a particular business

MIS acts in an organization just like a nervous system in a body by providing with the relevant information for ease in the process of decision making.

The purpose of MIS is to work towards satisfying the information needs of everyone in the business. It means providing the relevant information to those who need it.

Thus, MIS has a lot of potential to become one of the most promising careers for individuals interested in the workings of a business. 

4. Write the Objectives of MIS ?

Ans: Objectives of MIS 

The scope of MIS also involves understanding the objectives of MIS. mentioned below are the various objectives of MIS for your reference.

• Gathering Data– MIS professionals work on gathering data which might be useful and relevant in the decision making process for various internal and external sources of the organization.

• Data Processing- The gathered data needs to be processed in a systematic way so as to be of some help to the management. The data is processed into information which is used for planning, controlling, organizing and directing functionalities at different levels of the organization. Data processing means sorting data, making calculations with data etc.

• Information Storage– It means storing information in a safe manner so as to make it available for any future use.

5. Write the Characteristics of MIS ?

Ans: Characteristics of MIS:

The scope of MIS and nature of management cannot be realised fully without understanding the characteristics of MIS. mentioned below, for your reference, are the various characteristics of MIS.

• MIS is based on strategic, operational and tactical information of managers of an organization.

• It relies completely on existing corporate data and data flows.

• It is an inflexible work.

• Creates a linkage between different subsystems within the organization itself.

• Allows easy flow of information.

• Provides a holistic view of the dynamics and structure of the organization.

• MIS is based on long term planning.

6. Explain the Stages of Management Information System ?

Ans: Stages of Management Information System

There are three main stages of Management Information System (MIS):

• Planning of MIS
  Factors considered in this phase of MIS: Strategic Planning, Information Requirement Analysis, Resources Allocation and Project Planning

• Structure of MIS
  Components to determine the structure of MIS: Operation Systems, Decision Support System, Activities of Management, Functions in an organisation

• Implementation of MIS
  The activities for implementation of MIS are: Planning for implementation, Personnel Education and Training, Use of new system and acceptance, equipment and software installation, documentation and file conversion.

7. What is the Future of MIS?

Ans: As the world is embracing the digital wave, the future of MIS is surely vibrant. More and more business are adapting AI technologies as well as digital systems to smoothen their workings and that’s where the scope of MIS is quite bright. MIS jobs are bound to boost in the future as we adapt to more and more digital tools in our businesses and we would need more proficient tech professionals to operate such systems. 

Here are the major areas where the future of MIS jobs lies:

• Information Technology (IT)

• Risk Management

• Financial Management

• Business Analytics

• Digital Banking

• Healthcare Administration

• Hotel Management

• Hospital Management

• Digital Marketing and Analytics

8. Importance of MIS

• MIS is always management oriented and keeps in view every level of management and gets the desired information. 

• Integrated – refers to how diff components (sub systems) are actually tied up together. e.g.: different departments of organization linked together. 

• Useful for planning – as every organization makes log-term and short-term plans with the help of information like sales & production, capital investments, stocks etc management can easily plan. 

• Effective MIS helps the management to know deviations of actual performance from pre-set targets and control things. 

• MIS is important for increasing efficiency. 

• MIS provides updated results of various departments to management. 

• MIS is highly computerized so it provides accurate results. 

• MIS adds to the intelligence, alertness, awareness of managers by providing them information in the form of progress and review reports of an ongoing activity. 

• Helps managers in decision- making.

9.Different MIS Functions:

MIS is set up by an organization with the prime objective to obtain management information to be used by its managers in decision-making. Thus, MIS must perform the following functions in order to meet its objectives.

1) Data Capturing:

MIS captures data from various internal and external sources of an organization. Data capturing may be manual or through computer terminals. End users, typically record data about transactions on some physical medium such as paper form or enter it directly into a computer system.

2) Processing of data:

The captured data is processed to convert it into the required management information. Processing of data is done by such activities as calculating, comparing, sorting, classifying and summarizing.

3) Storage of information:

MIS stores processed or unprocessed data for future use. If any information is not immediately required, it is saved as an organizational record. In this activity, data and information are retained in an organized manner for later use. Stored data is commonly organized into fields, records, files and databases.

4) Retrieval of information:

MIS retrieves information from its stores as and when required by various users. As per the requirements of the management users, the retrieved information is either disseminated as such or it is processed again to meet the exact demands.

5) Dissemination of MI:

Management information, which is a finished product of MIS, is disseminated to the users in the organization. It could be periodic, through reports or on-line through computer terminals.

10.Write the applications of computers in management accounting purposes? 

Computer technology and its usage have registered a significant development during the last three decades. Historically, computers have been used effectively in science and technology to solve the complex computational and logical problems. They have also been used for carrying out economic planning and forecasting processes. Recently, modern day computers have made their presence felt in business and industry. The most important impact of computers has been on the manner in which data is stored and processed within an organisation. Although manual data processing for Management Information System (MIS) has been quite common in the past, modern MIS would be nearly impossible without the use of computer systems. In this chapter we shall discuss the need for the use of computers in accounting, the nature of accounting information system and the types of accounting related MIS reports.

12.1 Meaning and Elements of Computer System

 A computer is an electronic device, which is capable of performing a variety of operations as directed by a set of instructions. This set of instructions is called a computer programme. A computer system is a combination of six elements: 

12.1.1 Hardware

 Hardware of computer consists of physical components such as keyboard, mouse, monitor and processor. These are electronic and electromechanical components. 

12.1.2 Software

 A set(s) of programmes, which is used to work with such hardware is called its software. A coded set of instructions stored in the form of circuits is called firmware. There are six types of software as follows: 

(a) Operating System :

 An integrated set of specialised programmes that are meant to manage the resources of a computer and also facilitate its operation is called operating system. It creates a necessary interface that is an interactive link, between the user and the computer hardware. 

(b) Utility Programmes : 

These are a set of computer programmes, which are designed to perform certain supporting operations: such as programme to format a disk, duplicate a disk, physically reorganise stored data and programmes. 

(c) Application Software : 

These are user oriented programmes designed and developed for performing certain specified tasks: such as payroll accounting, inventory accounting, financial accounting, etc. 

(d) Language Processors : 

These are the software, which check for language syntax and eventually translate (or interpret) the source programme (that is a programme written in a computer language) into machine language (that is the language which the computer understands). 

(e) System Software : 

These are a set of programmes which control such internal functions as reading data from input devices, transmitting processed data to output devices and also checking the system to ensure that its components are functioning properly. 

(f) Connectivity Software : 

These are a set of programmes which create and control a connection between a computer and a server so that the computer is able to communicate and share the resources of server and other connected computers. 

12.1.3 People People interacting with the computers are also called live-ware of the computer system. They constitute the most important part of the computer system : 

• System Analysts are the people who design data processing systems. 

• Programmers are the people who write programmes to implement the data processing system design. 

• Operators are the people who participate in operating the computers. People who respond to the procedures instituted for executing the computer programmes are also a part of live-ware. 

12.1.4 Procedures 

The procedure means a series of operations in a certain order or manner to achieve desired results. There are three types of procedures which constitute part of computer system: hardware-oriented, software-oriented and internal procedure. Hardware–oriented procedure provide details about components and their method of operation. The software-oriented procedure provides a set of instructions required for using the software of computer system. Internal procedure is instituted to ensure smooth flow of data to computers by sequencing the operation of each sub-system of overall computer system. 

12.1.5 Data

 These are facts and may consist of numbers, text, etc. These are gathered and entered into a computer system. The computer system in turn stores, retrieves, classifies, organises and synthesises the data to produce information according to a pre-determined set of instructions. The data is, therefore, processed and organised to create information that is relevant and can be used for decisionmaking. 

12.1.6 Connectivity 

It is being acknowledged as a sixth element of the computer system. The manner in which a particular computer system is connected to others say through telephone lines, microwave transmission, satellite link, etc. is the element of connectivity. 

12.2 Capabilities of Computer System 

A computer system possesses some characteristics, which, in comparison to human beings, turn out to be its capabilities. These are as follows ; Speed : It refers to the amount of time computers takes in accomplishing a task or completes an operation. Computers require far less time than human beings in performing a task. Normally, human beings take into account a second or minute as unit of time. But computers have such a fast operating capability that the relevant unit of time is fraction of a second. Most of the modern computers are capable of performing a 100 million calculations per second and that is why the industry has developed Million Instructions per Second (MIPS) as the criterion to classify different computers according to speed. 

Accuracy : 

It refers to the degree of exactness with which computations are made and operations are performed. One might spend years in detecting errors in computer calculations or updating a wrong record. Most of the errors in Computer Based Information System (CBIS) occur because of bad programming, erroneous data and deviation from procedures. These errors are caused by human beings. Errors attributable to hardware are normally detected and corrected by the computer system itself. The computers rarely commit errors and perform all types of complex operations accurately. 

1.Explain the nature and objectives of ‘Management Information System’.

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Nature of Management Information System: 

Management Information Systems (MIS) can be simply referred to as a system or process that facilitates the smooth working of the organisation. The nature of MIS is truly multifold because it plays a bigger role in business decisions, from costs to employee management. Here are the major features that portray the nature of MIS:

• MIS is utilised by every level of a management.

• It clarifies and focuses on the strategic goals and objectives for the management.

• MIS provides an effective system to analyse costs and revenues and further reviews effectively and efficiently to bring a balanced in finances and costs.

• MIS is maintained either through manual systems or automated systems or a combination of both.

• It also plays a incremental role in identifying, locating, measuring, tackling and limiting risks.

• It lays down a framework of rules and regulations for the management to bring a clear and concise communication between employees.

• MIS provides an objective system of collecting, assessing and aggregating information for a business.

Objectives of MIS:

The scope of MIS also involves understanding the objectives of MIS. mentioned below are the various objectives of MIS for your reference.

• Gathering Data– MIS professionals work on gathering data which might be useful and relevant in the decision making process for various internal and external sources of the organization.

• Data Processing- The gathered data needs to be processed in a systematic way so as to be of some help to the management. The data is processed into information which is used for planning, controlling, organizing and directing functionalities at different levels of the organization. Data processing means sorting data, making calculations with data etc.

• Information Storage– It means storing information in a safe manner so as to make it available for any future use.

2. Explain the significance of the following cost in decision making process:

a. Opportunity cost

b. Imputed Cost

c. Out of pocket cost

d. Sunk Cost

e. Discretionary cost

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a) Opportunity cost:

Opportunity costs represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. Because opportunity costs are unseen by definition, they can be easily overlooked. Understanding the potential missed opportunities when a business or individual chooses one investment over another allows for better decision making.

b) Imputed Cost:

Imputed Cost—is the cost allocated for resources or use of a service which does not involve a cash outlay. They are hypothetical costs and are not recorded in the books of accounts.

There are those costs which do not involve cash outlay. These are not included in the cost accounts. But they are important and management gives greater importance to such costs. Interest on capital is such a cost which does not find a place in cost computation but which is the most important consideration from every angle which is certainly helpful in judging the relative profitability of the projects. These costs are also known as Hypothetical overheads.

c) Out of pocket cost:

Out-of-pocket expenses refer to costs that individuals pay out of their own cash reserves. The phrase is most often used to describe an employee's business and work-related expenses that the company later reimburses. It also describes a policyholder's share of health insurance costs, including money spent on deductibles, copays, and coinsurance 

d) Sunk Cost:

A sunk cost, sometimes called a retrospective cost, refers to an investment already incurred that can’t be recovered. Examples of sunk costs in business include marketing, research, new software installation or equipment, salaries and benefits, or facilities expenses. By comparison, opportunity costs are lost returns from resources that were invested elsewhere. 

Economists suggest that, in theory, sunk costs are not relevant to future decision-making. In practice, however, sunk costs can and do significantly influence decisions about the future. This is largely because it’s psychologically challenging to let go of previously invested time, effort, or financial resources even if the outcome of those investments fails to meet expectations.

e) Discretionary Cost:

A discretionary cost is a cost or capital expenditure that can be curtailed or even eliminated in the short term without having an immediate impact on the short-term profitability of a business. Management may reduce discretionary costs when there are cash flow difficulties, or when it wants to present enhanced short-term earnings in the financial statements. However, a prolonged period of reduction in discretionary costs gradually reduces the quality of a company's product pipeline, reduces awareness by customers, increases machine downtime, and may also decrease product quality and increase employee turnover. Thus, discretionary costs are actually only discretionary in the short-term, not the long-term.

Unit VI:

1. Cost Audit

Cost audit represents the verification of cost accounts and checking on the adherence to cost accounting plan of a company. Cost audit ascertains the accuracy of cost accounting records to ensure that the cost accounting records maintained are in conformity with cost accounting principles, plans, procedures and objectives.

A cost audit comprises of:-

• • Verification of the cost accounting records such as the accuracy of the cost accounts, cost data, cost reports, cost statements and costing techniques adopted by a company.

  • Examination of these records to ensure that they adhere to the cost accounting principles, plans, procedures and objectives.

  • To report to the Government on optimum utilization of national resources.

2. Applicability of Maintenance of Cost Records

The Companies (Cost Records and Audit) Rules, 2014 are applicable to every company registered under the Companies Act which are engaged in production of goods or providing of services listed in Table-A or Table-B of Rule 3.

The rule 3 has classified sectors/industries under Regulated and Non-Regulated sectors.

6 sectors / industries covered under item A of the rules are ‘regulated sector’ and 33 sectors / industries covered under item B are ‘non-regulated sector’. For providing further clarity, Central Excise Tariff Act (CFTA) headings are given against the respective industries. For maintenance of cost records, no distinction is made between companies falling in item A and B

3. Threshold limits for maintenance of cost records

Different threshold limits have been prescribed in the Rules for applicability of maintenance of cost accounting records and coverage under cost audit. Rule 2(e) defines “cost records” as ‘books of account relating to utilization of materials, labour and other items of cost as applicable to the production of goods or provision of services as provided in Section 148 of the Companies Act 2013 and these Rules’. Any transaction – statistical, quantitative or other details – that has a bearing on the cost of the product or activity is important and forms part of the cost accounting records

Every company, including foreign companies defined in clause (42) of Section 2 of the Companies Act 2013, engaged in the production of the goods or providing services, specified in Items A and B, having an overall turnover from all its products and services of Rs. 35 crore or more during the immediately preceding financial year, shall be required to maintain cost accounting record.

4. Companies not covered under Cost Audit

However, this requirement does not apply to foreign companies having only liaison office in India which are engaged in production, import and supply or trading of medical devices listed in entry 33 of item B. Companies which are classified as a micro enterprise or a small enterprise including as per the turnover criteria under sub-section (9) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) are also excluded from the purview of the rules. Further, as turnover of ‘immediately preceding financial year’ is required to be checked, every year company has to check the turnover of preceding financial year for maintenance of cost records.

Companies whose revenue from exports in foreign exchange exceeds 75% of its total revenues or companies operating from special economic zones are exempt from the requirement of cost audit.

5. Turnover Criteria for Cost Audit

The criteria for applicability of cost audit are different for companies in regulated and non-regulated sector:

6. Appointment of Cost Auditor

The companies falling in rule 3 and fulfilling the criteria in rule 4 are required to appoint a cost auditor within 180 days of the commencement of every financial year. Cost auditor, as combined reading of rule 2 (b) and (c) reveals, can be:

• • a cost accountant in practice or

  • a firm of cost accountants or

  • a limited liability partnership of cost accountants

A cost accountant holding certificate of practice on part time basis is not entitled to conduct cost audit. Thus, only a cost accountant in whole-time practice can conduct cost audit.

8. Method of appointment of cost auditor / fixation of remuneration

Rule 14 of the Companies (Audit and Auditors) Rules, 2014 provides the method of appointment and fixation of remuneration of cost auditors which are as under:-