Verification of Records and Reports

Verification of Records and Reports:-


Details of Cost Accounting Records

(a) The records contemplated under Section 209(1)(d) of the Companies Act, 1956 would include all 

cost accounting records maintained by the company and made available for audit. The following

records are considered as part of the cost accounting records-

(1) Production:-

     (a) Consumption register of raw material, packing materials, etc.

     (b) Production reports.
     (c) Scrap, wastage, spoilage and defective reports.
     (d) Machine utilization report and idle time report.
     (e) Details of production hours, labour and machine hours.

(2) Raw materials stores etc. :-
    (a) Goods received register.
     (b) Bin cards and stores ledger.
     (c) Material consumption and stock reports.

(3) Utilities (Steam, power & water) :-
    (a) Records of inputs and outputs.
    (b) Records of cost centre-wise allocation of products.
    (c) Records for own generated power and purchased power.

(4) Wages and Salaries :-
    (a) Attendance registers.
    (b) Payroll.
    (c) Leave wages and gratuity payments.
    (d) Overtime and idle time records.


(5) Overheads :-
    (a) Overheads analysis/distribution registers.
    (b) Overhead absorption details.

(6) Repairs and maintenance :-
    (a) Work order register

(7) Work-in-progress and fi nished goods :-
   (a) Cost centre-wise/product-wise stock register.
   (b) Product-wise fi nished goods register.

(8) Cost accounts, records and statements :-
   (a) Cost centre-wise assets register.
   (b) Product ledger.
   (c) Annexures and proformae as per Cost Accounting Records Rules.
   (d) Reconciliation of profi t/loss as per costing and fi nancial records.

(9) Sales :-
  (a) Sales register including export sales register.
  (b) Sales analysis by products (quality, size, variety-wise).

 (b) The above mentioned cost records shall be maintained on a regular and continuous basis and

not at the end of the year only.


Review of Cost Accounting Records by Cost Auditor:-

(a) The cost auditor during the course of audit will thoroughly review the cost accounting records.
Such review and verifi cation may include :
   1. Methods of costing in use – batch, job, process etc.
   2. System of fi xation of cost centres.
   3. Procedures for accounting of raw materials, packing materials, and spares, etc.
   4. Methods of accounting of wastes, rejections and defectives.
   5. System of recording of wages, salaries and overtime and their allocation.
   6. Incentive schemes in vogue.
   7. Basis of allocation/apportionment of utilities.
   8. Method of accounting for depreciation and charging depreciation to cost centres.
   9. Method of apportionment/allocation of service department expenses.
   10. Basis of reapportionment of service department expenses to production departments.
   11. Basis of absorption of overheads to products.

   12. Basis of absorption of interest, bonus, gratuity and selling and distribution cost to products.
   13. Treatment of research and development expenses.
   14. Budgetary control system.
   15. Internal audit system.
   16. Method of accounting of production and sales.
   17. Method of evaluation of work-in-progress.
   18. System of stock-taking.
   19. Method of valuation of inventories.

(b) If the company has manual for cost accounting, the cost auditor should study the manual
thoroughly.
Verifi cation of Cost Proformae and Annexures:-

(a) The cost auditor has to examine all the cost accounting records, cost statements, other books and 

documents, annexures and proforma to the report and other relevant data in course of his audit 

work. Such examination of the cost and fi nancial statements by the cost auditor may include the 

following –

1. Financial position including fi nancial ratios as required to be stated in Para 24 of the Annexures
    to the Cost Audit Report Rules.
2. Licensed capacity, installed capacity, production and capacity utilized (Para 4).
3. Consumption of raw materials, power and fuel, salary and wages, stores and spare parts,
    provision for depreciation, expenditure on overheads, royalty and technical know-how
    charges, quality control expenses, pollution control expenses, abnormal non-recurring costs
    and other items.
4. Sales realization – local and export unit and total for each variety of product.
5. Cost proformae maintained by the company as per cost accounting records rules.
6. Reconciliation with fi nancial books.

(b) As mentioned earlier, the examination of cost proformae as per provisions contained in relevant 

cost accounting records rules and other items mentioned above may commence only after the end 

of the accounting year when all the closing entries are passed through the books of account.