The Institute of Cost and Management Accountants of Pakistan (ICMAP) has recommended to the Central Board of Revenue (CBR) that all issues of sales tax, sales tax refunds, tax liabilities and refund of custom duty, pertaining to manufacturing concerns, be settled on the basis of their ‘cost audit reports’.
The ICMAP has called for issuing a specially designed Statutory Regulatory Order (SRO) in this regard. It has also recommended to Security and Exchange Commission of Pakistan (SECP) that cost audit reports, generated under, Companies (Audit of Cost Accounts) Rules, 1998 be made a public document by making available to all stakeholders.
Presently, under these rules, cost auditing of accounts of only the following four industries have been made mandatory by the SECP:
1. Sugar
2. Cement
3. Vegetable Ghee
4. Fertiliser.
However, up until now, the SECP has not made public the results of the cost audit of these four industries.
A seminar on cost audit was organised jointly by the ICMAP and College of Business Management (CBM), on Thursday. It highlighted the non-implementation of the Companies (Audit of Cost Accounts) Rules, 1998 and suggested ways and means
to improve the enforcement of the law and rules.
Three associate members of the ICMAP – Sayyid Manssob Hasan, Sadaqat Ali, and M Yakoob Admani – presented their papers at the seminar.
The practice nowadays is to present the cost auditors’ report to the directors of the companies. It however remains unclear whether these reports should also be forwarded to the SECP or not.
The report of cost auditors has to cover 17 specific areas of production, ranging from capacity utilisation to the comparative figures of the balance sheet.
Sayyid Mansoob Hasan pointed: “Presently Cost and Management Accountants (CMAs) are eligible to conduct cost audit alongside Chartered Accountants (CAs)”;.
This, according to him, was an anomaly, since CMAs are most competent to conduct cost audit. CAs, he said, are experts in financial audit and should be restricted to their domain. He called for removal of this anomaly.
Hasan said presently cost audit reports were not being made public for analysts and researchers, with the result that no audited cost figures and statistics were available for research. He suggested that the scope of cost audit be defined to avoid duplication of audit exercise.
Yakoob Admaney, another speaker, while presenting his paper on sugar industry said: “It is advisable that the cost statements of sugar mills be published alongside the annual financial statements”.
According to him, “this would provide opportunities for appreciating the efficiency of the sugar mills and their management”.
Sadaqat Ali, another associate member of the institute said, “The CBR should take into consideration the cost audit reports and decide the issues of sales tax refunds based on these reports. According to him, cost audit reports categorically document the cost of raw material, labour, overheads, manufacturing, administrative and other expenses, thus making them the most
suitable document in this regard.
He was of the opinion that if the Government wanted to develop the traditions, institutions, and culture of cost audit in the country, and desired to utilise the information for growth in its revenues, it needed to synchronise the operations of CBR and the SECP.
Ali suggested that a report accepted by one department of the CBR be accepted by another and the concerned laws and rules be changed to facilitate the tax payees.
He presented the following 4-point strategy to enforce the rules of cost audit:
1. The cost audit should be conducted in the first month after the close of financial year and this report be accepted by financial auditors (Chartered Accountants) as they do with the co-auditors in case of a joint audit.
2. The financial audit should be conducted in the second and third months after the close of the financial year without disturbing the routine working of the management.
3. The cost audit reports should also be submitted to the CBR and cases of referral of issues of sales tax, either tax liabilities or refunds and custom duties, should be made on the basis of these reports.
4. The cost auditors should be made responsible for any variance or difference or any other negligence without any ‘if(s) and but(s)’, and a checklist of existence of goods controls be issued.
Former Auditor General of Pakistan, Mahmood A Lodhi informed the seminar that the ICMAP has also developed Cost Accounting Record Rules for more than eight industries such as pharmaceuticals, chemicals, fertilisers, motor vehicles,
synthticals and rayons, electric cables and conductors, and cycle industry and that these have been forwarded to the SECP for its approval and implementation.
Currently, he disclosed, the ICMAP is busy in preparing the cost accounting rules for room air conditiners, tractors, caustic soda, tyres and tubes, refrigerators, automobiles, steel tubes and pipes, and dyes industries.
He said the completion of this exercise would enable the manufacturing industries to maintain the Cost Accounting Records on a uniform basis thus helping the cost auditors to conduct cost audit with greater efficiency and effectiveness under section 258 of the Companies Ordinance, 1984.
