MAINTENANCE OF COST RECORDS

MAINTENANCE OF COST RECORDS

Every company to which “Cost Accounting Records Rules 2011” apply, including units and branches, in respect of each of its financial year, are required to keep cost records on regular basis in such manner so as to make it possible to calculate per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities carried out at individual production units or locations for every financial year on monthly / quarterly / half-yearly / annual basis.

These Cost Records are required to be maintained in accordance with the Generally Accepted Cost Accounting Principles (GACAP) and Cost Accounting Standards (CAS) issued by the Institute of Cost Accountants of India (Formerly Institute of Cost and Works Accountants of India), to the extent these are found to be relevant and applicable. The Cost Accountant is required to clearly indicate and explain any variation, if any, in his compliance report or cost audit report as the case may be.

Cost Records are required to be maintained on continuous basis from the basic stage of inputs to the final output. These rules also required that the records should be maintained in such a manner so that they are able to provide necessary data which is required to be furnished under these rules.  All such cost records and cost statements, maintained under these rules shall be reconciled with the audited financial statements for the relevant financial year specifically indicating expenses or incomes not considered in the cost records of statements so as to ensure accuracy and to reconcile the costing profit of all its products/activities with the overall profit of the company. The Cost Accountant is required to clearly indicate and explain any variation, if any, in his compliance report or cost audit report as the case may be.

There cannot be any exhaustive list of cost accounting records. Any transaction, statistical, quantitative or other details that has a bearing on the cost of the product/activity would be important. It is advisable to maintain such records and details in a structured manner on a regular basis so that the accumulation is possible on a periodical basis. An illustrative list of Cost Records can be as follows:

1.       Production

1.1.     Raw Material consumption register / report;

1.2.    Production Report;

1.3.    Rejection / wastage /scrap report;

1.4.    Report on stoppage of machines with reasons;

1.5.    Idle time report with reasons;

1.6.    Machine utilization report;

1.7.    By-Product & Joint Product.

2.       Work-in-Progress and Finished Goods

2.1.    Process stock register-cost centre-wise and product wise;

2.2.    Finished goods stock register-product wise;

2.3.    Daily Stock Accounts (DSA) maintained under Central Excise Law.

3.       Repairs and Maintenance

3.1.    Work order register / card showing material and spares consumed and labour utilized;

3.2.    Procedure followed for routine maintenance;

3.3.    Details major breakdowns & repairs;

3.4.    Details of Abnormal Repairs & Reconditioning activities.

4.       Utilities (Water, Steam, Power, DM Water, Air, Effluent Treatment etc.)

4.1.    Records of input and output;

4.2.    Record of cost centre-wise allocation of outputs.

5.       Raw Materials and Stores Accounting

5.1.    Goods received register;

5.2.    Bin cards;

5.3.    Materials / stores ledgers;

5.4.    Packing material;

6.       Employee Cost

6.1.    Attendance registers /sheets;

6.2.    Wages / salary sheet;

6.3.    Leave and gratuity payments.

7.       Overheads

7.1.    Details such as production hours, labour hours, machine hours to facilitate distribution of overheads;

7.2.    Overheads keys.

8.       Cost Accounts

8.1.    Overheads analysis register;

8.2.    Cost centre-wise asset register;

8.3.    Product Ledger

8.4.    Annexures and proformae as per rules

8.5.    Reconciliation of profit/loss as per cost records and financial records.

9.       Sales

9.1.    Product-wise Sales analysis;

9.2.    Stock Transfer;

9.3.    Marketing / Market Research Cost

The following steps can be taken to ensure proper maintenance of cost records:

1.       Study and examine the chart of accounts with special reference to the system of cost methods adopted by the company.

2.       Study the basis raw material and packing materials, chemicals and stores required for the manufacture of the product and their sources.

3.       Study the organizational structure and know the details of manufacturing process.

4.       Examine whether cost centres are split-up into production & services functions.

5.       The licensed capacity and installed capacity should be ascertained. Any addition to production capacity during the preceding two years should also be ascertained.

6.       Examine the adequacy of internal checks and control.

7.       Before starting the assignment, meet the various important executives of the company and note down the functions, responsibilities and powers delegated to each.

8.       Obtain an understanding of the business and the production processes involved, the flow of the process, till the finished goods are packed and transferred to the finished stores for dispatch.

9.       Obtain the Balance Sheets of the company for the past two years and make a note of the important points contained in the Directors’ Report to the shareholders on the various financial, operation and technical matters.

10.   Study the books/records containing production records etc., statistics maintained by the factory(s) in compliance with the Excise and other Government requirements and note down the Licensed and Installed capacities. Ascertain the reasons for shortfall in production, if any, as compared to the previous two years.

11.   Compare actual production with the installed capacity.

12.   Prepare a complete quantitative analysis beginning with input materials (both direct and indirect), corresponding production at each stage of production, any by-product or join products produced, scrap and wastages generated, quantity transferred for captive consumption and the stage from which such transfer is taking place and final reconciliation with that of sales and stocks in respect of each type of product.

13.   Study the Cost Accounting System followed by the company. Examine whether the same system is followed in case the Company is engaged in production of different and varied types of products manufactured at different locations and such locations are operating under different autonomous Divisions under the overall management of the Company.

14.   Make proper identification of various production and service cost centres and check whether the expenditure is initially booked to these cost centres correctly.

15.   Check whether the relevant cost accounting standards and generally accepted cost accounting principles (GACAP) are being followed for valuation of materials, utilities, overheads etc.

16.   It is necessary to prepare individual service/utilities cot statements, viz., Water Steam, Power, DM Water, Purified Air etc. Ensure consumption records of these utilities at various production and service centres properly maintained and allocate the costs on an equitable basis to the various consuming cost centres. In respect of supplies made to or received from other units of the company, ensure that the transfers are made at cost of production/generation at per-determined transfer price in financial accounts, the same has to be reserved for cost accounts and considered at cost.

17.   Ascertain any abnormal reasons for low production and/or high usage of services/utilities and high down time in the plant. Find out whether these have been properly recorded and reported separately.

18.   Verify whether consistency Is maintained with regard to cost accumulation, cost analysis, cost allocation and apportionment, cost treatment and costing procedures adopted for inventory valuation from period to period.

19.   Examine the records maintained for inter-company transfers.

20.   Ascertain if any Royalty/Technical Services Fee has been paid to Collaborator/Technology Supplier. If it is one-time lump sum payment, check whether the charge to cost of product is spread over the period for which benefit is to be derived out of the payment and the same is equitable and reasonable.

21.   Examine whether there is any Royalty agreement and check its effect on cost of production and allocation of the cost to the product.

22.   Examine the practice followed for maintaining quality of the product and related Quality Control Expenses. Check the amount incurred on quality control, quality control, quality audit etc. and their treatment in the cost of product.

23.   Examine whether the company is complying with the various legal provisions with respect to pollution control and the expenses incurred therefor and whether absorption of such cost in the product is done equitably and consistently.

24.   Cost of production should be derived for domestic sale and export sale separately.

25.   Verify the reconciliation statement between the profit/loss as per the cost accounts and as per the financial accounts. Also examine the variations and reasons thereof.

26.   Examine whether the data maintained in the cost record are reconciled with the relevant returns submitted by the company to government authorities.

27.   Where a system of standard costing is used, it should be ensured that such costs are converted into actual for the purpose of determining the figures required to comply with the requirements of Cost Accounting Record Rules. The method of adjustment of variances to arrive at the actual cost from the standard cot should be examined.

28.   Examine that cost statements have been prepared as per requirements of Cost Accounting Records Rules.

29.   Examine whether Cost Accounting Standards and Generally Accepted Cost Accounting Principles issued by the Institute of Cost Accountants of India are being followed.

30.   Examine if there are any abnormal features affecting production during the year, e.g., strikes, lock-outs, major breakdowns in the plant, substantial power cuts, serious accidents, etc., and what is their impact on the cost of production.

31.   Examine if there are any special expenses, which have been directly allocated to products under reference, and what is the total amount as also the incidence per unit of product.

**All such Cost Records, Cost Statements and Reconciliation Statements, maintained under these rules, relating to a period of not less than eight financial years immediately preceding a financial year or where the company had been in existence for a period less than eight years, in respect of all the preceding years are to be kept in good order.

**Penal Provisions: The Rules provide for penalty for cost accountant and companies as follows

a)      Default by a Cost Accountant: If default is made by the Cost Accountant in compliance with the provision of these rules, he shall be punishable with fine, which may extend to ` 5000.

b)      Contravention by a Company: If a company contravenes any provisions of these rules, the company and every officer thereof who is in default, including the persons referred to in section 209 (6) of the Act, shall be punishable as provided under section 642 (2) read with section 209 (5) & (7) of the Companies Act, 1956 (1 of 1956).