CHAPTER-04

FINDINGS
4.1 Cost Audit in Banglades
Cost Audit was implemented first time in Bangladesh as per companies Act 1994 in
section 220. The Government has notified the second order for implementing Cost Audit
in 11eleven! listed companies of which "five! from #uel & $ower sector and %si&!
from 'ute sector through Ga(ette )otification of 'anuar* 12+ 200,+ -ha.a+ Bangladesh.
Cost Auditor who is /ualified Cost 0 1anagement Accountants is authori(ed to conduct
Cost Audit.
2t is to mention that Cost audit is not *et another audit. 2t is a necessit*+ a most important
re/uirement of time. 2t is onl* through Cost audit 3* which the matter can e&pose to the
3enefit of the nation. 2t is onl* through transparenc* that the national resources can 3e
efficientl* utili(ed. Cost audit needs no more emphasis4 it is national re/uirement.
4.! Statuto"# Regulation o$ Cost Audit
#ollowings are the law relating to Cost Audit in Bangladesh56
Companies Act 1994:
I 7here in the opinion of the government+ it is necessar* to do in relation to an*
compan* re/uired under clause d! of 8ection 191 to include in its 3oo.s of
accounts the particulars referred to therein+ the government ma*+ 3* order+
direct that an audit of cost accounts of the compan* shall 3e conducted in such
manner as ma* 3e specified in the order 3* an auditor who shall 3e a :cost and
management accountant; within the meaning of the Cost and 1anagement
<rdinance+ 19== >222 of 19==!.
II An audit conducted 3* an auditor under this section shall 3e in addition to an
audit conducted 3* an auditor appointed under 8ection 210.
III The provisions relating to audit of a compan* specified in this Act+ mutatis
mutandis+ and so far as the* are applica3le+ appl* to an audit conducted under
this section.
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Cost Audit (Report) Rules, 1997:
)otification dated 2960,62001 of the 1inistr* of Commerce of the Government of the
$eople;s ?epu3lic of Bangladesh was pu3lished in Bangladesh Ga(ette of 1=60462001.
Order of the Government for Cost Audit:
<rder dated 1161262001 of the 1inistr* of Commerce of the $eople;s ?epu3lic of
Bangladesh was pu3lished on 1161262001 in the Bangladesh Ga(ette introducing Cost
Audit in all pu3lic limited companies and in nationali(ed industries initiall* in
Government 8ugar 1ills. <rder dated 2%61262002 was pu3lished on 126016200, in
Bangladesh Ga(ette introducing Cost Audit in " enlisted companies of #uel 0 $ower
sector and % enlisted companies of 'ute sector.
CA Ordinance, 1977 (Ordinance !o" #$$$ of 1977):
The ordinance+ made 3* the $resident of the $eople;s ?epu3lic of Bangladesh on 096116
19== and pu3lished as notification dated 14611619== in the Bangladesh Ga(ette.
4.% Cost Audit P"o&ess
Cost audit em3races the following stages in its process5
Stage 1' To .now a3out the cost accounting rules
2ndustr* firm
2n mar.et industr* firm Applica3le cost accounting rules
2ndustr* firm
Stage !' To .now a3out the industr* whether it is manufacturing trading or mining
industr*.
Stage %' To .now a3out the organi(ation within the factor*
2nternal control s*stem
==
-elegation of authorit* and responsi3ilit*.
Stage 4' 2ntroducing with the earlier o3servation
auditor will o3serve the0 earlier situation
And will detect how much the organi(ation should 3e hanged.
Stage (' 7or.ing out cost audit program which ma* include
cost audit o3@ectives
cost audit planning
cost audit programs
Stage )' <rgani(ing the audit staff
the /ualification of the staffs should 3e considered
the num3er of the emplo*ees should 3e determined considering the
organi(ational capacit*
Stage *' <rgani(ing the wor.ing papers
the auditor should collect all relevant documents to prove his opinion
These documents include A
I $roduction related records
II 7or.ing process and finished goods related records
III ?epair and maintenance related records
I+ 2nput6output and cost center wise records
+ ?aw materials and store related records
+I 7ages and salar* related records
+II <verhead related records
+III Cost accounts
I, 8ales related records and sales anal*sis records
8tage 95 8u3mission of the report to the Government
The auditor will inform a3out the conclusion of the audit report of the
compan* to the management 3ut su3mit the report to the Government.
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4.4 Su--l# o$ Cost A&&ounting Re&o"ds
The compan* comes under the purview of cost audit as per written order of the
government+ shall suppl* cost accounting records as are re/uired to 3e maintained under
section 191 1! d! of the companies act+ statement other 3oo.s+ documents etc. within
sevent* five da*s after the end of financial *ear in order to ena3le the cost auditor to
perform his audit wor..
4.( Su./ission o$ Cost Audit Re-o"t
After completing the audit wor.+ the cost auditors is to prepare two copies of cost audit
reports of the compan* under audit and shall su3mit the same to the 3oard of directors of
the compan* and the government within a ma&imum of 1"0 da*s from the end of audit
*ears.
The cost audit shall e&plain matters regarding which e&planation has 3een sought 3* the
government. This is to 3e done within in the time limit stipulated 3* the government.
7ithin thirt* da*s of the su3mission of cost audit report 3* the cost auditor+ the chief
e&ecutive officer of the compan* shall place the cBsame 3efore the 3oard of directors.
The cost audit report shall not 3e .ept open for inspection 3* shareholders or shall not 3e
placed 3efore the annual general meeting. But if the government feels in the interest of
the shareholders+ it ma* order in writing specif*ing the reasons that the whole of the cost
audit report or part of it 3e placed 3efore the ne&t annual general meeting and in such a
case the matters referred to in the order+ are to 3e placed 3efore that meeting.
Cost accounting statements are to 3e authenticated @ointl* 3* the chief e&ecutive officer
and chief of the Accounts -epartment. 2f an* one of them or 3oth remain outside
Bangladesh+ a person or persons remaining in charge shall authenticated the same.
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4.) Fo"/at o$ Cost Audit Re-o"t
After completing the cost audit the cost auditor is to su3mit a cost audit report in the
following format4
C 2 D we EEEE having 3een appointed as auditors hereafter referred to as cost
auditor! under section 220 1! of the companies act 1994 Act no 19 of 1994! of 1essers
EEEEEEE.ltd herein after referred to as the compan*!+ have e&amined the 3oo.s
of accounts prescri3ed order clause d! of su3section 1 of the section 191 and other
relevant records for the *ear ended EEEEand report su3@ect of m*Dour comments
given in the appendi&+ that..
a. 2 D we have D have not o3tained all the information and e&planation
which to the 3est of m* .nowledge and 3elief were necessar* for the
purpose of this audit4
3. $roper cost accounting records under clause d! of su3section 1! of
191 of the companies act pf 1994 haveD have not 3een .ept 3* the
compan*.
c. $roper returns ade/uate for the purpose of m*Dour cost audit haveD
have not 3een reviewed from 3ranchesD segments not visited 3* the
compan*.
d. Boo.s relating to cost accounting maintained 3* the compan* give do
not give information as prescri3ed 3* records rule and a true and fair
view of the cost of productionD distri3utionD mar.etingD transportD
processingD manufacturingD grain grinding or millingD mine e&ploration
or e&traction isD is not availa3le and
e. The anne&ed cost statement and statement of stoc.s are or are not in
agreement with the 3oo.s maintained 3* the compan*
EEEEEE
Cost auditor
$lace5
90
-ate5
A--endi0 to &ost audit sall &ontain te $ollo1ing5
General5
I The name of the compan* and address of its registered office
II -ate of incorporation of the compan*
III 8tatus of the compan* privateDpu3lic!
I+ Address of the factor* if there are more than one factor*+ address of each
factor* is to 3e provided!
+ -ate of commencement of commercial production in the factor*.
+I $lace of .eeping accounts
+II 2n case of foreign associates+ a cop* of agreement with associates is to 3e
furnished. 2f it is not possi3le+ a 3rief description on the following matters is to
3e provided.
+III )ame and address of foreign associates.
I, 2mportant terms of contracts.
, Amount of ro*alt* pa*a3leDtechnical fees pa*a3le and its 3asis.
,I 2f the technical associates contri3utes to capital+ their share in the paid up
capital.
,II 2f the compan* engaged in the activit* other than the product under cost audit+
a 3rief description of such other activit*.
4.* Cost Audit Pe"$o"/ed in Indust"ial Se&to" o$ Banglades
As per the Government of Bangladesh Ga(ette pu3lished in 8unda*+ 'anuar*+ 12+ 200,+
11 companies were mandator* to maintain cost audit among the listed pu3lic limited
compan* under -ha.a 8toc. F&change >td.
According to the power of Compan* >aw 1994+ section 220 the following 11 compan*
are mandator* to maintain cost audit6
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2a3 Fuel 4 Po1e" Se&to" 2(3'
I B<C Bangladesh >td.
II $adma <il Compan* >td.
III Fastern >u3ricants Blenders >td.
I+ )ational <&*gen >t.
+ Bangladesh 7elding Flectrodes >td. And
3! 5ute Se&to" 2)3'
I 'ute 8pinners >td.
II )orthern 'ute 1anufacturing Compan* >td.
III 8onali Aansh 2ndustries >td.
I+ 8aleh Carpet 1ills >td.
+ 1utual 'ute 8pinners >td.
+I 2slam 'ute 1ills >td.
4.6 Cost Audit Pe"$o"/ed in Se"7i&e Se&to" o$ Banglades
2n case of service sector there is no ga(ette notification to perform cost audit. 2t is not
mandator* for an* compan* to perform cost audit. 2t depends on their willingness.
4.8 Inde-enden&e o$ &ost audito"
Cost audit is defined as an independent of cost accounting records. 8o the independence
of cost auditor is ver* important. An independent auditor+ at least theoreticall*+ should 3e
a3le to operate without an* 3ias and without an* interference of management in the
normal course of hisBher wor.. 2n order to uphold his independence section %2! of the
cost audit report rules+ 199= made certain peoples ineligi3le for appointment as cost
auditor. for e&ample+ emplo*ees of the+ partner or emplo*ees of such emplo*ees+ persons
inde3ted to the audited for more than t..1000+ director or mem3er of a private compan*
appointed as a managing agent of the auditee and finall*+ persons appointed as auditor of
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the auditee under section 210. moreover+ schedule 4 referred to in regulation 104 of the
cost and management accountants ordinance+ 1990 descri3es certain practices as
professional misconduct which+ inter alia+ includes prohi3ition as to undercutting+
soliciting wor. from clients+ having financial interest in the client+ accepting commission
from clients etc. the overriding purpose of all these provisions is to ma.e sure that the
auditor can operate in an o3@ective and independent manner.
4.10 P"o.le/ "ega"ding te inde-enden&e o$ &ost audito"
Gnder section "1! of the cost audit report rules+ 199= the 3oard of directors of the
compan* shall appoint the cost auditor within ,0 da*s of each financial *ear upon written
instruction from the government. 2n this case the 3oard shall also determine the
appropriate audit fees. At the end of the audit+ the cost auditor shall su3mit the cost
auditor report to the 3oard of directors together with a cop* to the government. Thus+ we
see that under the e&isting provisions cost auditor would 3e appointed 3* the
management+ together with determination of his fees+ and he would 3e as.ed to report
3ac. to the management on the finding of audit. 2n this process+ the independence
referred to a3ove will 3e @eopardi(ed. Here the cost auditor is as.ed to perform a difficult+
if not impossi3le+ @o3. 2t;s li.e as.ing a person to swim after throwing him into a pond
full of water while his hands and legs are tied together.
)ow the pro3lem of independence arose 3ecause we seem to 3e in a state of confusion on
the o3@ective of cost audit. 2f the primar* o3@ective of cost audit is serve as a management
tool to improve cost management practices and there3* to assist in the ma&imi(ation of
compan*;s profit then independence does not seem to 3e a pro3lem. 2n order to achieve
this o3@ective the auditor can smoothl* wor. under the e&isting legal provisions to serve
the interest of the compan* and its management. However+ in this case it would 3e wise
to call the whole process as an investigation as per re/uirements of management instead
of calling it as a cost audit. 2n that case it ma* 3e 3etter to call the cost auditor as simpl* a
cost consultant.
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But if the o3@ective of cost audit is to 3ring accounta3ilit* and transparenc* in the cost
management practices of the companies 3* .eeping in mind the greater national interest
of the compan*. 2 am afraid under the e&isting legal provisions it is impossi3le to wor. in
on o3@ective and independent manner. 2n m* opinion+ we+ the cost and management
accountants+ have a greater responsi3ilit* to serve the national interests 3* 3ringing order
to the cost management practices of the companies. 2n this process certainl* cost
efficienc* and pricing of the auditee companies would also improve. But that should 3e
viewed as an additional o3@ective onl*. 7hile carr*ing out the responsi3ilit* of cost
audit+ the auditor should in no wa* compromise the greater national interest of compan*;s
profita3ilit*. Gnder the current legal provision the danger of compromise is alwa*s there
as the cost auditor is unli.el* to 3e a3le to wor. independentl* unless some reforms are
3rought to the e&isting corporate governance structure in order to empower the cost
auditor.

4.11 P"o$essional Bodies in Banglades
$rofessional 3odies in Bangladesh are 2nstitute of Cost and 1anagement Accountants of
Bangladesh 2C1AB!. 2t is esta3lished in 19==. 2t performs the cost audit in Bangladesh.

The <rdinance made 3* the $resident of the peoples ?epu3lic of Bangladesh on 096116
19== and pu3lished as notification dated 14611619== in the ga(ette+ is placed 3elow5
An <rdinance to constitute an institute of Cost and 1anagement Accountants in
Bangladesh for the purposes of regulating the profession of Cost and 1anagement
Accountants.
7hereas it is e&pedient to constitute an 2nstitute of Cost and 1anagement Accountants in
Bangladesh for the purpose of regulating the profession of Cost and 1anagement
Accountants and for matters connected therewith.
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4.1! Cost Audit in Cu""ent In$lationa"# E&ono/# o$
Banglades
2nflation is the rate at which the general level of prices for goods and services is rising+
and+ su3se/uentl*+ purchasing power is falling. A general increase in the price level of
goods and services. Gne&pected inflation tends to 3e detrimental to securit* prices+
primaril* 3ecause it forces interest rates higher. A point to .eep in mind is that a certain
amount of inflation is alread* em3odied in securit* prices. )ow a da* the whole
econom* of Bangladesh is inflationar* trend. The price of the goods 0 services increases
da* 3* da* without an* reason. The sellers are tr*ing to ma&imi(e his profit. The* are
tr*ing to ma.e s*ndicate. There is a huge gap 3etween producers to consumer. There is
no e&istence of an* regulation. )ow it is proper time to regulate the prices. 8o for this
present inflationar* econom* of Bangladesh it is necessar* to mandator* cost audit.
4.1% P"o.le/s o$ Cost Audit in Banglades
Trul* spea.ing+ cost audit should have no limitation of its own. 2f there is an* limitation+
it does not relate to the o3@ectives for which it has 3een introduced4 it ma* arise due to its
limited scope of application in the related fields of operation. However+ it is found to 3e
critici(ed on the following grounds that5
I 2t has 3een superimposed on the financial audit.
II 2t determines the progress of the organi(ation 3* interfering to the wor. of the
management 3* tal.ing a3out efficienc* and propert*.
III The audit staffs in actual practice do not perform an* important function
e&cept gossiping.
I+ 2t involves greater amount of cost for the @o3s which can 3e done 3* the
internal auditor.
+ 2f the introduction of cost audit s*stem was considered essential and
introduced for the protection of the interest of the shareholders then wh* the
cost audit reports are not pu3lished regularl*.
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+I Cost auditors are not alwa*s a3ove frauds+ errors and manipulation. The* are
made of flesh and 3lood. Therefore+ in collusion with the management+ the*
ma* also distort the financial position and misappropriate.
+II 2t 3ecomes ver* difficult to esta3lish responsi3ilit* of the accountants in case
3usiness goes into li/uidation
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