SUMMER TRAINING PROJECT REPORT

ON
PROCESS OF COMPANYS AUDITING
Prepared and Presented to

SIMPLEX CASTINGS LIMITED

UNDER THE GUIDANCE OF

Ms. BHAWANA TOMAR

(Manager of Tax and Audit)
BY
SHUBHANSI AGRAWAL
VIKASH GAVEL
(Student of MBA)

ACKNOWLEDGEMENT:
I am neither a research expert nor a trend spotter; I am a management student with
foundation of management principles and theories, who is curious about various
sectors and its latest happenings.
Definitely, I cant ignore the technology, with Internet as the backbone and those search
engines which helped me in building up this research project.
To being with, I am obliged to Ms. BHAWNA TOMAR (Manager of Tax and Audit
of SIMPLEX CASTINGS LIMITED).who allotted me this interesting topic and without
whose guidance and constructive criticism this report might have not been completed .I
would like to thank all the Employees and individuals. I appreciate for their cooperation
and contributions for helping me in making project factual and information.
Lastly, I would like to thanks to the ALMIGHTY and my parents for their moral and
financial support and my colleagues with whom I shared my dad-to-day experiences
and received lots off suggestions that improved my work quality.

SHUBHANSI AGRAWAL
VIKASH GAVEL

DECLARATION

We undersigned, solemnly declare that the report of the summer

training entitled PROCESS OF COMPANYS AUDITING in
SIMPLEX CASTINGS LIMITED is based on my own work carried
out during the course of my study under the supervision of Ms.
BHAWNA TOMAR (Manager of Tax and Audit).
I assert that the statements made and conclusions drawn
are an outcome of summer training work. I further declare that to
the best of my knowledge and belief the report is original and
does not contain any part of any work which has been submitted
for

the

award

of

degree/diploma/certificate

MBA
in

University of India or abroad.

this

degree

or

University

any
or

any

other
other

SHUBHANSI AGRAWAL

VIKASH GAVEL

CORPORATE PROFILE
Simplex Castings Limited (SCL) started in the year 1970 as a small Grey Iron
Foundry. Subsequently, it was converted into a Private Limited Company registered
under the Indian Companies Act, with its registered office at Mumbai India, on 30 Jan
1980.The Company went Public in 1993.It's Shares are listed in Mumbai Stock
Exchange. SCL is a well managed dividend paying company making profit since it's
inception.
The company is engaged in manufacturing of Heavy Engineering Castings in various
grades (as cast, machined & assembled condition) for all industrial sectors (both from
Domestic & International markets) like Steel Plants, Power Plants (Thermal, Hydro,
Wind), Railways, Mines, Cement, Chemical, Oil, Defense, Sugar, Earth Moving,
Machine Tools, Heavy Valves & Pumps Castings, Ship Building etc.
The company believes in developing new products in line with changing technology
and requirements of customers. Monitoring the international market in the present
scenario of changing economic condition , is a continual process adopted by the
company. Customer's satisfaction is embedded into the corporate culture. Each
employee is committed for quality adherence.
VISION
"Global Player in Foundry, Heavy Engineering & Projects"
CORPORATE MISSION
Projects from Concept to Commissioning and to Manufacture Engineeringoriented Eco-friendly Products for various Industrial Sectors involving Castings,
Machining & Fabrication.
CORE VALUES

- Customer Satisfaction
- Total Quality
- Cost Consciousness
- Care for Employees, Stake holders & Society
AWARDS & CERTIFICATIONS
Both Units of the company are ISO 9001:2000 Certified for its quality products. SCL is
registered with major Integrated Steel Plants, Power Plant Builders, Wind Mill
Manufacturers etc.. It is RDSO approved for Railway COCO Bogies, Casnub Bogies,
Truck frames, etc., .Our Labs are approved by International Inspection Agencies like
Lloyds. Bureau Verita, RITES, etc.
MAJOR ACHIEVEMENTS
First to export steel plant equipment to Russia.
First to bring Japanese Technology of Sinter plant in India.
First Indian Company to develop emission free coke oven doors in collaboration
with IKIO / YAMASAKI of Japan.
Completed Sinter Plant ( III ) on Turnkey contract basis in consortium with Mitsui
/ Kawasaki & Hitachi Zosen of Japan.
Developed critical castings of S.G. Iron pallets for Sinter Plants.
Successfully supplied 150 T Hot metal transfer car.
Machined 'A' &'B' radius segment of Slab Caster.
Successfully supplied chokes / cascades for rolling mills in finished
machined condition.
Fabricated Cooling Bed, Roll tables for Bar & Rod.
Regularly supplying SG Iron & C I Round Moulds.
A-Brackets, P-Brackets for ship building industry.

BHILAI PLANT
It has Induction and Cupola furnaces with an annual production capacity of 28000 MT.
It is a world class renowned Foundry. 30% of its annual production is exported to
different countries. It can make single piece of Grey Iron Castings weighing upto 45
MT. It is capable of producing a wide spectrum of cast iron castings like heat resistant,
acid resistant, Hi-chrome, wear resistant, Compacted Graphite iron castings etc.
It has Green Sand Molding Line - ARPA 1300 Jolt Squeeze Machine with fixed box size
of 1000 mmx1000mm and height 200-400 mm. Besides, it also have Hand Molding
facilities , a large sophisticated Design setup, Pattern Shop, Annealing furnace,
Machine Shop including CNC Machines, Fabrication shop, Assembly Shops, Sand

Blasting & Shot Blasting Plants. Unit has modern testing laboratories equipped with
spectrometers, Ultrasonic Testing facilities, modern physical lab, Micro structure testing
machine, etc.
URLA PLANT
It is a Mini Steel Plant manufacturing Engineering Special Steel Castings. It is
equipped with DETEM Plant imported from Germany for Metal Refining by Vacuum
Degassing method. Its single piece manufacturing capacity is up to 25 MT. This foundry
has sophisticated testing facilities Spectrometers, Hydrogen Analyzers, Cobalt X-ray
Machines, Ultrasonic Testing equipment etc.
KEY PERSONS
Shri Arvind Kumar Shah
Shri Ketan M. Shah
Shri Shailesh A. Shah
Shri Govardhan Gopalswamy
Shri Kisan Ratilal Choksey
Shri Hasmukhlal S. Parikh
Shri Shivji R. Shah
Shri Rajendra A. Shah

Chairman
Managing Director
Whole-time Director
Whole-time Director
Director
Director
Director
Director

CASTING PRODUCTS
Carbon & Alloy Steel Castings - Upto 35000 KGS
Steel Plants
Sinter Car Pallet
Body
Slag Cup / Ladle
Gear Wheel
Girth Gear
Kiln Tyre

Railways

Power Plants

Cement

Truck Frame

Valve Components

Mill Head

Coco / Casnub Bogie

Axle Housing
Gear Wheel
Bearing Housing

Rotor Hub
Grinding Ring / Balls
Pump Casing
Bearing Housing /

Girth Gear
Kiln Tyre
Kiln Support Rollers
Linner Plate

Support Rollers
Forged Wheels
&Axles
Rolling Mills Stand
Chocks
Grinding Ring &Balls
Bell &Hoppers
Cross Beam
Bearing Housing
Drop balls
Mainipulator Guard

Magnet Frame
Suspension Tube

Rollers
Journal opening
frame / Cover
Support Rollers

Side Frame / Bolster Cross Beam

Bogie Bolster
Driving Arm
C.P.Top &Bottom
Wheels

Sugar

Oil &Gas
Valve
Bearing Rollers
Components
Head Stock
Wheels
Crown Pinion
Butter Fly Valves
Mill Head
DPCV Valves
Girth Gear
QCNRV Valves
Support Rollers Gate Valves
Mill Head
Disc
Trash Turn
Door
Beam
Pump Bodies

Mining

M/C Tools

Gringing Ball
Gear Wheel
Bearing Housing
Support Rollers

Others

Gear Wheel

Bracket

Cross Beam
Linner Plate
Dragline Bucket
Sigma Line Pan

PE / CE Barrel
Bearing Rollers
Pulley
Gear Box
P Bracket
A Bracket

FABRICATED ITEMS & EQUIPMENTS

Torpedo ladle Car
Contineous Caster Machine
Tilting Ladle Stand
Bogie for 100 Ton Ladle Car
Ingot Casting Car
Crane Girders / Column
Hammer Crusher

Ingot Mould Car 160 Ton

Drun Section for Sinter Plant
Furnace Charging Conveyor
Slag Ladle Car
Billet Transfer car
Stator Rails for Wind Mills

VALUED CUSTOMERS
The company is a global player. The customers are spread across the globe. Our
customers belong to wide spectrum of industries like Steel Plants, Power Plants
(Thermal, Hydro & Wind), Railways, Mines, Cement, Chemical, Oil & Gas, Sugar, Earth
Moving, Machine Tools, Heavy Valves and Pumps, Ship Building etc.
Few of our valued customers:
INDIA
Atomic Energy
Bharat Heavy Electricals
Bharat Earth Movers
Essar Group
Garden Reach
HEC
Indian Railways
Jindal Group
Larsen &Tubro
NTPC
Steel Authority of India
Suzlon
Tata Iron and Steel Company
Triveni

ABROAD
China Steel Corp., Taiwan
Danieli Corus Europe BV, The Netherlands
DMW Corpoation, Japan
GE Transportation System, USA
Hoogovens Tech., Netherland
Hyundai Heavy Industries Ltd., Korea
Ingersoll Dresser Pomp, France
Kawasaki Heavy Industries, Japan
Man Ferro Staal, Germany
Tyazhpromexport, Russia
VAI Siemens, Germany

INTRODUCTION
The word audit is derived from the Latin word audire which means to hear. It is an
important tool of management. It is concerned with making an analytical and critical
analysis of the books of accounts, checking and verification of evidence in support
of entries appearing in the books of accounts, and ascertaining the authenticity of the
financial statements. It is also concerned with the examination of accounting data to
determine the extent of an audit examination is too made on the basis of evidential
document such as invoice, money receipts and other records by the authorized
representative of the client. Auditor has used to send for the accountants and
hear whatever they had to say in connection with the accounts. The auditor has to look
into the facts behind figures and he must certify their accuracy. Auditing is to ascertain
the balance sheet and profit and loss account that they show a true and fair view of the
financial state of affairs of a concern. The Institute of Charted Accountants of India has
issued a number of statements of standard auditing practices and accounting
standards for guidance of Auditor of India.

According to DICKSEE An audit may be said to be such an examination of the

books, accounts and vouchers of a business, as will enable the auditor to
satisfy himself that the balance sheet is properly drawn up, so as to exhibit a true
and fair value of the state of the affairs of the business, whether the profit and
loss account gives a true and fair value of the profit and loss for the financial year.
According to the best of his in formation and explanations given to him and as shown
by the books, and if not, in what respect he is not satisfy.

RELATIONSHIP OF AUDIT WITH ACCOUNTING

Both accounting and auditing are closely related with each other as auditing reviews
the
financial
statements which are
nothing
but a result of
the overall accounting process. It n a t u r a l l y c a l l s o n t h e p a r t o f t h e
a u d i t o r t o h a v e a t h o r o u g h a n d s o u n d k n o w l e d g e o f GAAP before he can
review the financial statements . In fact, auditing as a discipline is also closely
related with various other disciplines as there is lot of linkages in the work which
is done by an auditor in his day-to-day activities . To begin with, it may be noted
that the discipline of auditing itself is a logical construct and everything done
in auditing must be bound by the rules of logic. The knowledge of l a n g u a g e
is also considered essential in the field of auditing as the auditor
s h a l l b e r e q u i r e d t o c o m m u n i c a t e , b o t h i n w r i t i n g a s w e l l a s o r a l l y,
i n d a y- t o - d a y w o r k .
ASPECTS TO BE COVERED IN AUDIT
The principal aspects to be covered in an audit concerning final statements of accounts
are as follows: An examination of the system of accounting and integral controls to ascertain
whether it is appropriate for the business and helps in properly recording all
transactions.
Reviewing the systems and procedures to find out whether
t h e y a r e a d e q u a t e a n d comprehensive.
Check the arithmetical accuracy of books of accounts by the
verification of postings balances etc.
Examine the documentary evidence to establish the accuracy, authenticity and
validity of transactions recorded.

 Verifying that a proper distinction is made between capital and revenue items.
Ver i f i c a t i o n o f t h e t i t l e , e x i s t e n c e a n d v a l u a t i o n o f a s s e t s
a p p e a r i n g i n t h e b a l a n c e sheet.
Examination that the statutory requirements are complied with.
Verifications of the liabilities stated in the balance sheet.
Comparison of balance sheet and profit and loss account and other
statements with underlying records in order to see that they are in accordance
there with.
Checking the results shown by the balance sheet and profit and loss
account to see whether the results shown are true and fair.
Reporting to the proper person as to what extent, accounts reveal a true and fair
viewof the state of affairs and of the profit and loss account of the organization.
FUNCTION
Important functions of auditing can be summed up as follows:
Reviewing systems and procedures of business.
Examining documentary evidence to establish the accuracy of recorded
transactions.
Reviewing the system of accounting and Internal Controls.
To verify the valuation and existence of assets.
To examine the mathematical accuracy of accounting statements.
To see whether the statutory requirements have been complied with.
Reporting as to what extent, accounts exhibit true and fairness.
To make recommendations for improvement in Internal Control and Accounting
System.
To verify the distinction between capital and revenue items.

PRINCIPLE GOVERNING AN AUDIT

Principle of Independence
The audit work should be independent from accountancy and the auditor should
examine the books of accounts indifferently and independently. He should be free from
any such interests which may affect his integrity and objectivity.
Principle of Objectivity
The audit work should be based on evidence and should be done impartially and in an
unbiased way.
Principle of Materiality
The principle of materiality is and has always been fundamental to the whole process
of counting. An auditor has also to be quiet concerned regarding the concept of
materiality . The auditor has to analyze and take decisions regarding various items
whether they are material or not during the course of audit. In case the auditor finds
that an item is quiet material in nature he would have to give careful consideration to its
checking and would care for more evidence in support.
Confidentiality
The auditor should maintain the confidentiality of the clients information. It is well said
that an auditor keeps his ears and eyes open, but his mouth shut. He should disclose
the information only when:-He has obtained permission of his client . There is legal or
professional duty to do so.
Work performed by others
The auditor can delegate work to assistants or can use work performed by others ,
auditors or experts. But he will continue to be responsible for expressing an opinion of
financial statements. The auditor should obtain reasonable assurance that work
performed by other auditors or experts is adequate for his purpose. ICAI has issued
AAS-7,AAS-9,AAS-10,AAS-12 and AAS-17 in regard to this issue.
Documentation
Documentation is an important aspect of any audit. An auditor should maintain
sufficient working papers for each audit assignment. Such documentation is very
important in providing evidence that the audit was carried out in accordance with the
basic principles.
Planning
The Auditor should plan his work to enable him to conduct an effective audit in an
efficient and timely manner. Plans should be based on knowledge of business client .
Plans should be revised as necessary during the course of audit. AAS-8 issued by ICAI
deals with aspects of planning.
Accounting System and Internal Control
Management is responsible for maintaining an auditable adequate accounting system
incorporating various internal controls to the extent appropriate to the size and nature
of the business. The internal controls contribute to audit assurance that the accounting
system is adequate and that all the accounting information has been duly recorded.

AAS-6 has established standards for obtaining an understanding of accounting and

internal control system.

Audit Conclusion and Reporting

Auditor should review and assess the conclusions drawn from the audit evidence
obtained . He should assess whether the financial information complies with
recognized accounting principles. He should also assess the disclosure requirements.
The audit report should contain a clear and written expression of opinion on financial
information. AAS-28 describes the elements and types of audit report.
Audit evidence
The information which may be oral or written, obtained for the purpose of the audit is
known as audit evidence. Auditor should obtain sufficient and appropriate evidence to
enable him to draw conclusions so as to make an opinion on financial statements.
Audit evidence can be obtained with the help of following:-Compliance Procedures
Substantial Procedures Tests of Details Analytical Procedures.
ADVANTAGES OF AUDIT
The fact that audit is compulsory by law, in certain cases by itself should show that
there must be some positive utility in it. The chief utility of audit lies in reliable financial
statements on the basis of which the state of affairs may be easy to understand. Apart
from this obvious utility, there are other advantages of audit. Some or all of these are of
considerable value even to those enterprises and organizations where audit is not
compulsory , these
Advantages are given below: It safeguards the financial interest of persons who are not associated with the
management of the entity, whether they are partners or shareholders.
It acts as a moral check on the employees from committing defalcations or
embezzlement.
Audited statements of account are helpful in settling liability for taxes,
negotiating loans and for determining the purchase consideration for a business.
These are also useful for settling trade disputes for higher wages or bonus as
well as claims in respect of damage suffered by property, by fire or some other
calamity.
An audit can also help in the detection of wastages and losses to show the
different ways by which these might be checked, especially those that occur due
to the absence or inadequacy of internal checks or internal control measures.

 Audit ascertains whether the necessary books of account and allied records
have been properly kept and helps the client in making good deficiencies or
inadequacies in this respect
As an appraisal function, audit reviews the existence and operations of various
controls in the organizations and reports weaknesses, in adequacies , etc., in
them.
TYPES OF AUDITING WHICH ARE TO BE PREPARED IN MANUFACTURING
UNIT :
1. Tax audit
2. Cost audit
3. Internal audit

TAX AUDIT
Introduction
The Tax Audit season has started and its the time when the Assessees rush to their
Chartered Accountants (CA) to get their Tax Audit done in time and CAs work overnight
to get the audits of their clients done in time.
Background:The Tax audit was introduced by section 11 of the Finance act, 1984 by insertion of a
new section 44AB to the Income Tax Act, 1961 w.e.f. 1st April, 1985.
Applicability
1.A Person carrying on business is required to get his books of account compulsorily
audited u/s 44AB If the total sales, turnover or gross receipt in business for the
previous year relevant to assessment year exceed or exceeds Rs. 60 Lakh for the
Assessment year 2011-12 and 2012-13 (Rs. 1 Crore from the assessment year 201314).
2. A person carrying on profession is required to get his books of account compulsorily
audited u/s 44AB, if his gross receipts in profession for the previous year relevant to
the assessment year exceeds 15 lakh for the assessment year 2011-12 and 2012-13
(Rs. 25 lakh from the assessment year 2013-14).
3. A person covered u/s 44AE, 44BB or 44BBB is required to get his books of account
compulsorily audited u/s 44AB if such person claims that the profits and gains from the
business are lower than the profits and gains computed under these
sections(irrespective of the turnover)

4. A person covered u/s 44AD is required to get his books of account compulsorily
audited u/s 44AB if such person claims that the profits and gains from the business are
lower than the profits and gains computed in accordance with the provisions of section
44AD(1) and if his income exceeds the maximum amount which is not changeable to
tax(i.e basic exemption limit).

Forms and due date:

Forms No. 3CA, Form No. 3CD in case of person who carries on business or
profession and who is required by or under any law to get his accounts audited and
Form No. 3CB and 3CD, in case of a person who carries on business or profession but
not being a person referred to above.
Due date for getting the books audit and filing of return in both the above cases is the
due date of furnishing return u/s 139(1) i.e 30th September of the relevant assessment
year.
Audit under any other law: In case where the accounts are required to be audited by or
under any other law(as in the case of companies and cooperative societies), it is
sufficient if accounts are audited under such other law before September 30 of the
assessment year and the assessee obtains before the said date, audit report as
required under such law and also a report of audit from a chartered accountant in the
audit forms under Income Tax Act i.e Forms No. 3CA, Form No. 3CD.
No penalty u/s 271B if audit report obtained within due date but return filed after due
date: After the introduction of new annexure less return forms, the audit report u/s
44AB is not required to be attached with the return. It should not be furnished
separately also before or after the due date. However, an assessee should get the
audit report before the due date of the furnishing of the return and should fill the
relevant columns of return forms on the basis of such report. the assessee should
retain the report with himself. It may be furnished at the time of assessment
proceedings. No penalty shall be attracted for not furnishing the audit report on or
before due date. However, if audit report is not obtained before due date, penalty u/s
271B shall be attracted.
Quantum of Penalty for failure to get accounts audited within due date: If any person
fails to get his accounts audited as required under the provisions of section 44AB
before the due date u/s 139(1), the AO may impose penalty which may be a sum equal
to one-half percent of the total sales, turnover or gross receipts subject to a maximum
of Rs. 1.5 Lakh.Section 44AB applicable to only business Income: Section 44AB
provisions are applicable only in the case of business/profession income. It is not
applicable in respect of other incomes-Thai Constructions v. State of
Maharashtra[2009] 184 Taxman 52 (Bom.).
Turnover in case of broker: Transactions by a share broker of sale or purchase of
shares on behalf of parties cannot amount to sale turnover or receipt of share broker
himself within the meaning of section 44AB-CIT v Hasmukh M. Shah[2003] 85 ITD 99
(Ahd.)

Auditors Responsibility:It is the professional duty of the CA to ensure that the audit accepted by him gets
completed on or before the due date. If there is any unreasonable delay on his part, he
is answerable to ICAI, if the complaint is made by the client. However, if the delay in
the completion of audit is attributable to his client, the tax auditor cannot be held
responsible.
OBJECTIVES OF AUDITING
There are two main objectives of auditing. The primary objective and the secondary or
incidental objective.
a. Primary objective as per Section 227 of the Companies Act 1956, the primary
duty (objective) of the auditor is to report to the owners whether the balance sheet
gives a true and fair view of the Companys state of affairs and the profit and loss A/c
gives a correct figure of profit of loss for the financial year.
b. Secondary objective it is also called the incidental objective as it is incidental to
the satisfaction of the main objective. The incidental objective of auditing are:
i. Detection and prevention of Frauds
ii. Detection and prevention of Errors.

DISTINCTION BETWEEN ACCOUNTING AND AUDITING

Points of difference
Accounting

Auditing

1. Meaning

It is recording of all the day to

It is the critical examination of
day transactions in the books of the transactions recorded in
accounts leading to preparation the books of accounts.
of financial statements.

2. Nature

It is concerned with finalisation

of accounts.

It is concerned with
establishment of reliability of
financial statements.

3. Objects

The object is to
ascertain the trading results.

The object is to certify the

correctness of financial
statements.

4. Commencement

Accounting commences when

book keeping ends.

Auditing begins when

accounting ends.

5. Scope

It involves various financial

statements.It involves
maintenance of books of
accounts.It does not go beyond
books of accounts.

It depends upon the

agreement or upon the
provisions of law. It
goes beyond books of
accounts.

ADVANTAGES OR USEFULNESS OF COST AUDIT

Besides the chief merit of detecting and preventing errors and frauds as in the case of
audit in
general. cost audit secures the following advantages to the management. shareholders
and Government.
I. Usefulness to the Management:
(1) It ensures effective internal control.
(2) It provides necessary information for prompt decision making.
(3) It facilitates inter firm comparison.
(4) It helps to increase the overall efficiency of productivity.
(5) Inefficiency can be eliminated by suitable corrective actions.

(6) Errors. omission, fraud and mistakes can be detected and prevented due to
effective auditing of
Cost Accounts.
(7) It facilitates cost control and cost reduction.
(8) It creates cost consciousness among employer and employees.
(9) It assists in valuation of stock of materials. work in progress and finished goods.
(10) It ensures maximum utilization of available resources.
II. Usefulness to the Government:
(1) Cost Audit helps in fixing contract price in cost plus contract.
(2) Helps in fixing of selling price for essential commodities.
(3) Enables Government to focus attention on inefficient work.
(4) Enables Government to give protection to certain industries.
(5) Facilitates settlement of trade disputes.
(6) It imposes an automatic check on inflation.
III. Usefulness to the Shareholders:
(1) It ensures more profit and high return to the shareholders.
(2) It creates an image of creditworthiness of the concern.
(3) It reflects a high degree of reliability to cost data.
(4) It ensures efficient management in utilization of plant and machinery, land and
building, worker and employees etc.
COST ACCOUNTING RECORDS
The areas of activity in respect of which cost accounting records are to be maintained
under Cost Accounting Record Rules are :
(1) Raw Materials, Components, Stores and Spare Parts
(2) Salaries and Wages
(3) Service Department Expenses
(4) Utilities
(5) Depreciation
(6) Other Overheads
(7) Conversion Cost
(8) Research and Development Expenses
(9) Interest
(10) Joint Products and By-products
(11) Work in Progress and Finished Goods Stock
(12) Cost Statements
(13) Records of Physical Verification
(14) Packing
(15) Production Records
COST ACCOUNTING RECORDS RULES,2011
MCA had earlier issued 44 'Cost Accounting Record Rules' in respect of number of
products / industries (as listed under section 209 (1) (d) of Companies Act)

Each book of account and the Performa prescribed by the rules made for specific
industry should be completed within the prescribed time limit after the end of the
relevant financial year of the company
However, in super session of 36 out of 44 cost accounting record rules, MCA issued
the general Cost Accounting Records Rules known as The Companies (Cost
Accounting Records) Rules, 2011 vide G.S.R. 429(E) dated 3 rd June, 2011.
According to these rules, all companies engaged in activities of production or
manufacturing, etc. (for which cost accounts records have been prescribed) should
maintain accounting records relating to the utilisation of materials, labour and other
items of cost
As per subrule (2) of Rules1, these rules have come into force on the date of
publication in the Official Gazette i.e. 3rd June, 2011 .
APPLICABILITY
India aggregate value of net worth as on the last date of immediately preceding
financial year exceeds Five crores of rupees.
Wherein the aggregate value of the turnover made by the company from sale or
supply of all products or activities during the immediately preceding financial
year exceeds Twenty crores of rupee.
Wherein the companys equity or debt securities are listed or are in the process
of listing on any Stock exchange, whether in India or outside India aggregate.

COST ACCOUNTING RULES

(a) Cost Accounting Records (Bulk Drugs) Rules, 1974
(b) Cost Accounting Records (Formulations) Rules, 1988
(c) Cost Accounting Records (Fertilizers) Rules, 1993
(d) Cost Accounting Records (Sugar) Rules, 1997
(e) Cost Accounting Records (Industrial Alcohol) Rules, 1997
(f) Cost Accounting Records (Electricity Industry) Rules, 2001
(g) Cost Accounting Records (Petroleum Industry) Rules, 2002
(h) Cost Accounting Records (Telecommunications) Rules,2002
MAINTENANCE OF RECORDS(1) Every company to which these rules apply, including all units and branches thereof
shall, in respect of each of its financial year commencing on or after the 1st day of
April, 2011, keep cost records.
(2) The cost records referred to in sub-rule (1) shall be kept 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 for every
financial year on monthly/quarterly/half-yearly/annual basis.

(3) The cost records shall be maintained in accordance with the generally accepted
cost accounting principles and cost accounting standards issued by the Institute; to the
extent these are found to be relevant and applicable. The variations, if any, shall be
clearly indicated and explained.
(4) The cost records shall be maintained in such manner so as to enable the company
to exercise, as far as possible, control over the various operations and costs with a
view to achieve optimum economies in utilization of resources. These records shall
also provide necessary data which is required to be furnished under these rules.
(5) All such cost records and cost statements, maintained under these rules shall be
reconciled with the audited financial statements for the financial year specifically
indicating expenses or incomes not considered in the cost records or statements so as
to ensure accuracy and to reconcile the profit of all product groups with the overall
profit of the company. The variations, if any, shall be clearly indicated and explained.
(6) 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 shall be kept in good order.
(7) It shall be the duty of every person, referred to in sub-section (6) and (7) of section
209 of the Companies Act, 1956 (1 of 1956), to take all reasonable steps to secure
compliance by the company with the provisions of these rules in the same manner as
he is liable to maintain accounts required under sub-section (1) of section 209 of the
said Act.
Form of the Compliance Report
Every company to which these rules apply shall submit a compliance report, in respect
of each of its financial year commencing on or after the 1st day of April, 2011, duly
certified by a cost accountant, along with the Annexure to the Central Government, in
the prescribed form. 6. Time limit for submission of Compliance Report Every
company shall submit the compliance report referred to in rule 5 to the Central
Government within one hundred and eighty days from the close of the companys
financial year to which the compliance report relates.
Authentication of Annexure to the Compliance Report
The Annexure prescribed with the compliance report, as certified by the cost
accountant, shall be approved by the Board of Directors before submitting the same to
the Central Government by the company.
Appointment of Cost AuditorAs per Rule 5, the Compliance Report and annexure thereto is required to be certified
by a cost accountant as defined under Rule 2(c).
As per Rule 7, the annexure to the Compliance Report is to be duly approved by the
Board of Directors.
A cost accountant within the definition of these Rules does not include:
a) A member holding a part-time certificate of practice; or
b) A member who is in full time employment whose membership fees are in arrears;
c) A member of ICWAI who has been admitted as a member through reciprocal
arrangement of membership by virtue of being a member of Institute of Management
Accountants USA.

There is no ceiling on the number of Compliance Reports that can be authenticated by

a cost accountant in whole-time practice. A cost accountant working as permanent
employee can authenticate the Compliance Report of the company where he is
employed provided his membership dues are not in arrears. He cannot authenticate
Compliance Report of any other company even under the same group.
Penalties
(1) If default is made by the cost accountant in complying with the provisions of these
rules, he shall be punishable with fine, which may extend to five thousand rupees.
(2) 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 sub-section (6) of
section 209 of the Act, shall be punishable as provided under sub-section (2) of section
642 read with sub-sections (5) and (7) of section 209 of Companies Act, 1956 (1 of
1956).
SavingsThe supersession of the Cost Accounting Records Rules, shall not in any way affecta) any right, obligation or liabilities acquired, accrued or incurred there under;
b) any penalty, forfeiture or punishment incurred in respect of any contravention
committed there under; and
c) any investigation, legal proceeding or remedy in respect of any such right, privilege,
obligation, liability, penalty, forfeiture or punishment as aforesaid, and; any such
investigation, legal proceeding or remedy may be instituted, continued or enforced and
any such penalty, forfeiture or punishment may be imposed as if those rules had not
been superseded.

COST ACCOUNTING STANDARDS

CAS1
Classification of For preparation of Cost Statements
Cost
CAS2

Capacity
Determination

CAS2
(Revised
2012)

Capacity
Determination

CAS3

Overheads

CAS3

Overheads

9
1
6
3
For determination of capacity
4
9
8
8
To bring uniformity and consistency in the principles and
2
methods of determination of capacity with reasonable
6
accuracy.
4
9
For Collection, Allocation, Apportionment and Absorption of 4
overheads
0
1
8
To bring uniformity and consistency in the principles and
4

(Revised
2011)
CAS4

CAS5

CAS6

CAS7

CAS8

CAS9

CAS10

CAS11

CAS12

CAS13

CAS14

methods of determining the Overheads with reasonable

accuracy.

7
3
3
Cost of
To determine the assessable value of excisable goods used 6
Production for
for captive consumption.
1
Captive
2
Consumption
7
Average
To determine averaged/equalized transportation cost
4
(equalized) Cost
0
of Transportation
8
3
Material Cost
To bring uniformity and consistency in the principles and
5
methods of determining the material cost with reasonable
1
accuracy in an economically feasible manner.
7
0
Employee Cost

To bring uniformity and consistency in the principles and

4
methods of determining the Employee cost with reasonable 8
accuracy.
2
2
Cost of Utilities
To bring uniformity and consistency in the principles and
4
methods of determining the Cost of Utilities with reasonable 3
accuracy.
2
6
Packing Material To bring uniformity and consistency in the principles and
3
Cost
methods of determining the Packing Material Cost with
8
reasonable accuracy.
4
2
Direct Expenses To bring uniformity and consistency in the principles and
3
methods of determining the Direct Expenses with reasonable 9
accuracy.
4
0
Administrative
To bring uniformity and consistency in the principles and
4
Overheads
methods of determining the Administrative Overheads with 3
reasonable accuracy.
7
6
Repairs And
To bring uniformity and consistency in the principles and
4
Maintenance Cost methods of determining the Repairs and Maintenance Cost 0
with reasonable accuracy.
1
8
Cost of Service
To bring uniformity and consistency in the principles and
4
Cost Centre
methods of determining the Cost of Service Cost Centre with 7
reasonable accuracy.
0
2
Pollution Control To bring uniformity and consistency in the principles and
6
Cost*
methods of determining the Pollution Control Costs with
4

reasonable accuracy.
CAS15

Selling and
Distribution
Overheads

To bring uniformity and consistency in the principles and

methods of determining the Selling and Distribution
Overheads with reasonable accuracy.

CAS16

Depreciation and To bring uniformity and consistency in the principles and

Amortization
methods of determining the Depreciation and Amortisation
with reasonable accuracy.

CAS17

Interest and
Financing
Charges.

To bring uniformity and consistency in the principles

,methods of determining and assigning the Interest and
Financing Charges with reasonable accuracy.

CARR after 7th December 2011

1.Compliance Report
# Form A
# Form B
2.Time Limit for Submission With in 180 days from the close of the
companys financial year.
3.Authentication and Certification of Compliance Report
# Approved by Board of Directors
# Certified by a Cost Accountant
4.Compliance of Cost Accounting Standards and Accepted Cost Accounting
Principles Rule 4(3)# Generally accepted cost accounting principles (GACAP)
# Cost accounting standards (CAS)
5.Product and Product Group- Cost accounting records are required to be maintained
product-wise and unit-wise not product group wise.
6.Maintenance of Cost Records-Possible to calculate per unit cost of production or
operations, cost of sales and margin for each of its products.
AN ILLUSTRATIVE LIST OF COST RECORDS
1.Production Raw Material consumption report

3
6
3
6
1
4
1
4
4
9

 Production report
Rejections/Wastages/Scrap report
Report on stoppage of Machines with reasons
Idle time report with reasons
Machine utilization report
By-product & joint Products
2.Work-in-Progress and Finished Goods
Process stock register-cost center-wise and product wise
Finished goods stock register-product-wise
Daily Stock Accounts (DSA) maintained under Central Excise Law
3.Raw Materials and Stores Accounting
Goods Received Register
Bin Cards
Materials/Stores ledgers
Packing Materials
4.Employee Cost Attendance registers/Sheet
Wages/Salary Sheets
Leave and Gratuity payments
5.Repairs and Maintenance Works order register/card showing material and spares consumed and labour
utilized.
Procedure followed for routine maintenance.
Details major breakdowns & Repairs.
Details of Abnormal Repairs & Reconditioning activities.
6.Utilities (water, Steam, Power, DM Water, Air, Effluent Treatment) Record of input and output.
Records of cost center-wise allocation of outputs.

7.Overheads Details such as production hours, labour hours, machine hours to facilitate
distribution of overheads.
Overheads Keys.
8.Cost Accounts Overheads analysis register.
Cost center-wise assets register.
Product ledger.
Annexures and proformae as per rules.
Reconcilation of profit/loss as per cost records and financial records.
9.Sales Product-wise sales analysis.
Stock Transfer.

Marketing/Market Research Cost.

INTERNAL AUDIT
Internal audit is an independent management function, which involves a continuous
and critical appraisal of the functioning of an entity with a view to suggest
improvements thereto and add value to and strengthen the overall governance
mechanism of the entity, including the entity's strategic risk management and internal
control system.
Evolution of Internal Audit
Understanding the evolution of internal audit is important because the old image still 1
exists to some extent for modern internal auditors. K. H. Spencer Pickett , a noted
author in the field of internal audit, has identified the following stages in the evolution of
modern internal audit:
As a Sibling of External Audit
In the initial stages, internal audit began as an extended arm of an external/statutory
audit of financial statements. The main, but rather restricted, function of the internal
audit at this stage was verifying the reliability of the financial information included in the
financial statements. The internal audit function in this stage of evolution could not
understandably add much value to functioning of the entity.
As a Cross Check
In this stage of its evolution, internal audit was also required to test non financial
information and transactions in terms of their correctness and compliance with the laid
down policies and procedures.
As a Probity Policy
At this stage of its evolution, the internal audit came to be more concerned about the
probity aspects of the transactions especially those involving liquid and highly movable
assets such as cash, stocks, etc.

As a Non Financial Systems Policy

As the global economy surged forward full steam, the need for having a full fledged ,
strategically directed internal audit emerged as an inevitable service that could assist
management in decision making, moving away from being merely a police on financial

transactions. Thus, emerged the modern internal audit where the latter was
established as a separate function, in house or outsourced, with clearly laid down
missions and objectives to be achieved. As of today, internal audit undeniably is the
backbone of a sound corporate governance system.
Enhanced compliance requirements
Increase in the geographical spread of the businesses has also led to crossing of
political frontiers by businesses in a bid to tap global capital. This has thrown up
compliance with the laws of the home country as well as the laws of that land as a
critical factor for existence of businesses abroad.
MAJOR AREAS OF INTERNAL AUDIT
Purchase audit
Sales audit
Accounts audit
Operation audit etc.

CONCLUSION
The goal of an audit is to form and express an opinion on financial statements and
resource utilization. The audit is performed to get reasonable assurance on whether
the financial statements are free of material misstatement. An audit also includes
assessing the accounting principles used and the significant estimates made by the
management. Audit conclusions and reporting are one of the principles governing an
audit. Reporting is the last procedure of the process of an audit.
The auditor discusses his observations with those charged with governance, such as
the audit committee of the company, before finalizing the report. The auditor should be
firm in his opinion, and exercise his independence at this level. This part of the audit is
critical, and calls for resilience on the part of the auditor. An audit report, being a public
document, should be drafted skilfully. The code of conduct prohibits an auditor from
divulging any information received by him in the course of his professional assignment,
unless legally required so to do.