Cost Accountants Role in Certifying adequacy of Internal Audit

New Delhi, the 27th December, 2001
G.S.R. 924(E).- In exercise of the powers conferred by sub-section (4) of section 233B, read with subsection
(1) of section 227 and clause (b) of sub-section (1) of section 642, of the Companies Act, 1956 (1 of 1956),
and in supersession of the Cost Audit (Report) Rules, 1996, except as respect things done or omitted to be done,before such supersession, the Central Government hereby makes the following rules, namely
:-
FORM OF THE COST AUDIT REPORT
[See rule 2(c) and rule 4]
FORM OF THE COST AUDIT REPORT
[See rule 2(c) and rule 4]

3. Based on my/our examination of the records of the company subject to aforesaid qualifications, if any,
I/We give my/our observations and suggestions on the following -
(a) the adequacy or otherwise of the cost accounting system including inventory valuation in vogue in the
company and suggestions for the improvement thereof. The Cost auditor shall also indicate the persistent
deficiencies in the system, pointed out in earlier reports but not rectified;
(b) the adequacy or otherwise of the budgetary control system, if any, in vogue in the company;
(c) matters which appear to him to be clearly wrong in principle or apparently unjustifiable;
(d) cases, where price charged for related party transactions as defined in the respective Cost Accounting
Records Rules is different from normal price, impact of such lower/higher price on margin of the product
under reference shall be specified;
(e) areas where the company is incurring losses or where there is considerable decline in profitability, the cost
auditor should comment on the reasons thereof including indicative break-even point. The cost auditor
shall also comment on the default, if any on the payments due to the Government, financial institutions and
banks, penal interest levied thereon and its impact on the cost of sales and profitability;
(f) steps required to strengthen the company under the competitive environment especially with regard to need
for protection from cheaper imports, if any;
(g) export commitments of the company vis-à-vis actual exports for the year under review. Also comment on
comparative profitability and pricing policy of the company for domestic and export sales. Give impact of
exports benefits/ incentives offered by the Government on export profitability;
(h) the scope and performance of internal audit of cost records, if any, and comment on its adequacy or
otherwise.
4. The Cost Auditor shall suggest measures for making further improvements in the performance in respect of
cost control and cost reduction.
5. The Cost Auditor may also give his other observations and suggestions, if any, relevant to the cost
audit.