Cost accounting rules for industry streamlined

The ministry of corporate affairs (MCA) has done away with a 46-year system of prescribing sector-specific cost accounting record maintenance rules for 36 industrial segments. Instead, it has notified a common rule that outlines the broad principles companies need to follow.

The practice of notifying such records will continue only for eight sectors where government control over pricing, production or distribution exists today. These regulated sectors like medicines, fertiliser, sugar, industrial alcohol, electricity, petroleum and telecommunications are the only areas where the government will continue to dictate the mode of cost account maintenance.

The 36 sectors that will not have industry-specific rules now include cement, cosmetics and toiletries, engineering, plantation products and textiles. “It marks a major shift in the government policy. The new rule has switched over to a principle-based mechanism, where record maintenance has been linked with cost accounting standards and generally accepted cost accounting principles issued by Institute of Cost and Works Accountants of India”, a ministry official said.

The new rule will be applicable to every company that has a net worth exceeding Rs 5 crore or a turnover of at least Rs 20 crore. Companies whose equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India, will also have to follow the common cost accounting rule, irrespective of turnover or net worth.

Instead of the product or quantity-specific cost accounting prescription, the new rule gives a broad guideline as to what records companies need to maintain from 2011-12 onwards.

“The cost records … shall be kept on a 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 and annual basis”, the new rule says.

The changes in the rules that were in existence since 1965 were made on the basis of an expert committee recommendation three years earlier.