Govt orders cost audit for real estate, hospitals and educational institutions
Jul 07, 2014
Source : The Times of India


DELHI: The government on Monday ordered maintenance of cost records and audit for real estate companies, hospitals and educational institutions to drive in transparency and keep a check on their costing. The move will bring in the much-required transparency in fixing of prices in areas like housing and treatment costs at hospitals, while keeping a check on the fee charged by private educational institutions.

These crucial sectors were out of the ambit of cost audit so far and there was no clear way to determine whether the costs being charged to consumers were appropriate.

"Cost records shall be maintained on regular basis in such manner as to facilitate calculation of 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 or quarterly or half-yearly or annual basis," the notification said.

The cost records shall be maintained in such manner so as to enable the company to exercise, as far as possible, control over the various operations and costs to achieve optimum economies in utilization of resources, it further added.

"This is a consumer-friendly move and will ensure that there is no over-charging," Chander Wadhwa, past president of The Institute of Cost Accountants of India told TOI. "There have always been allegations that the costs for the companies are different but their charges for consumers are exorbitant. This move will help control such situations."

The notification, issued by the corporate affairs ministry, however, spared some sectors that were earlier required to maintain cost records and conduct cost audit. These include sectors like automobiles, electronics, electrical, paper, textile, paint and glass, Wadhwa said.

The notification classified four broad sectors for which cost records need to be maintained and cost audit filed with the government. The first category comprises of companies engaged in the production of goods in strategic sectors such as machinery and mechanical appliances used in defence, space and atomic energy. To fall under the category, the net worth of the company should be Rs 500 crore or more or its turnover should be Rs 500 crore or more.

The second category includes companies engaged in an industry regulated by a sectoral regulator or a ministry or department of central government. These include certain kinds of port and aeronautical services; telecommunication services; generation, transmission, distribution and supply of electricity, steel; roads and other infrastructure projects; drugs and pharmaceuticals; fertilizers; and petroleum products.

The addition of roads and infrastructure projects is likely to help in fixing of toll charges. In the case of a multi-product or a multi services company, products or service with turnover of Rs 50 crore or more will be covered in the audit.

The third and crucial category is for companies operating in areas involving public interest such as railway or tramway locomotives; mineral products including cement; companies engaged in education services; edible oil under administrative price mechanism; construction industry; companies engaged in health services viz. functioning as or running hospitals, diagnostic centres, clinical centres or test laboratories.

For this category, any product or a service (in multiproduct company) for which the individual turnover is Rs 50 crore or more will need a cost audit. In the case of a company producing any one specific product or service, cost audit will be required if the net worth of the company is Rs 150 crore or more or the turnover is Rs 25 crore or more.

The last category for whom cost audit is required comprises of companies (including foreign companies other than those having only liaison offices) engaged in the production, import and supply or trading of a classified set of medical devices.

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