Cost auditors call the shots

Practising cost and works accountants (CWAs), often considered poor cousins of chartered accountants, will see their fortunes soar following the recent government notification making cost audit mandatory for 14 selected industries.

In May, the Ministry of Corporate Affairs said all listed companies and companies with net worth exceeding Rs 5 crore or the turnover of over Rs 20 crore, will be covered under mandatory cost audit effective from April 1. In addition, unlisted companies in these industries where the turnover is beyond a particular threshold, are also required to undergo cost audit.

The threshold for some sectors like bulk drugs, formulations, fertilisers, sugar, industrial alcohol, electricity, petroleum and telecom is Rs 20-crore, while for others like steel and cement, the turnover is of Rs 100 crore.
 

NEW ENTRANTS
Listed Companies that require cost audit
Petroleum/petrochemicals	36
Pharmaceuticals	306
Paper	114
Cement/cement products	96
Fertilizers	45
Sugar	63
Telecom/equipment	55
Tyres	20
Electrical	102
Steel	334
Source: BS Research Bureau

The government also expanded the scope of cost audit, bringing in companies in manufacturing, mining and processing industries. Minimum criteria are either a networth of Rs 5 crore or a turnover of Rs 20 crore or listing on stock exchange. Saurabh Agarwal, director at Kennis Group, says this will bring in some 25,000 companies under automatic cost audit.

Until last financial year, these companies were only required to maintain cost records, but their audit was not mandatory. This implies businesses of practising cost auditors may multiply two-three times since 5,000 to 10,000 new companies have been brought under the ambit of automatic cost audit.

According to data compiled by BS Research Bureau, at least 1,170 listed companies will now be required to do cost audits. Until last year, the government picked specific companies for cost audits. Roughly 2,000 companies were picked every year.

K H Vishwanathan of Astute Consulting said, “It's definitely a big opportunity. It will be a big boost to the profession. We are talking of some 14 industries, which means at least 2,000-3,000 people getting work.”

According to auditors, cost accountants, among other things, analyse the costing of various components of a product in relation to prices charged to the consumer. Following demand from the sectoral regulators in these industries, companies in many consumer-facing businesses have been asked to undergo cost audits.

Practising cost accountants will see their businesses go up considerably as the notification requires these companies to be certified by a cost accountant with a certificate of practice. According to The Institute of Cost and Works Accountants of India, there are about 55,000 members, of which only 1,800 are practising. Some auditors may see business trebling this year. M K Singhal of MK Singhal & Co, a Delhi-based cost auditor, expects his business to double. “I audit around ten companies at present. Now, I expect to cover at least 10-20 companies more,” he said.