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Compulsory outsourcing of internal audit functions December 9, 2011

Posted by Khurana Khurana & Associates LLP Chartered Accountants in Internal Audit.
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Let me begin this by saying the views expressed are purely personal in nature and no interpretation/view should be used in any manner.

It is important for the organisations/management to understand the role of Internal Audit function, who is a system reviewer with an ideology of continuous improvement in line with the business processes and latest in the compliance environment.

The Internal Audit function is best when managed internally in the sense they will be dedicated to one organisation and are exposed to the complete working however they may be additionally supported by an outside agency which brings in a different mind-set. If the  scale of operations is small the same may be outsourced completely.

It is the prerogative of the management how they feel this function can be used in the best interest of the organisation. Making it compulsory, may not be serve the core purpose since the results of this function are dependent on the skill set and approach of the Internal Auditors.

The team of Internal Auditors should be a composition of Finance and Legal Professionals and may constitute of Chartered Accountants, Cost Accountants, Lawyers.

The statutory auditors will always be held accountable for the figures presented in the annual financial statements. The scope of reliance on the Internal Auditor is for the Statutory Auditor to decide and same should not be a defence available to them.

CA. Varun Khurana, Managing Partner varun@kkaca.com

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What can one expect from The Internal Auditors December 8, 2011

Posted by Khurana Khurana & Associates LLP Chartered Accountants in Internal Audit.
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Internal Auditors is a close group of seasoned professionals having an overall sense of the business process. They work closely with the management (across) with a clear mind-set of identifying the areas of risk, potential areas of risk, revenue leakages and recommending corrective measures to manage the risk, identifying the areas of revenue realisation and effective cost management.

In addition to the wholly owned companies, the Foreign Companies having/proposing to have joint ventures/subsidiaries/liaison office or venture capitalist should look at this Audit and Assurance function seriously. They can make a good use, not only to safeguard their financial interest but also grow it, by deploying Internal Auditors as Third Party Assurance Providers (TPA’s).

Internal Auditors with a forensic approach can be effective fraud risk managers. The benefits derived will far out way the cost to have good Internal Auditors.

For any clarification on how we could be of assistance reach us at varun@kkaca.com

CA. Varun Khurana, CEO & Managing Partner

Key Highlights of General Circular no. 67 & 68 for Cost Audit Dated 30-11-2011 December 8, 2011

Posted by Khurana Khurana & Associates LLP Chartered Accountants in Cost Accounting.
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  1. The companies covered under Companies (Cost Accounting Records) Rules, 2011 shall only file a simple compliance report as per the notified Form-B.
  2. For companies coming under the purview of the Companies (Cost Accounting Records) Rules, 2011 and the Companies (Cost Audit Report) Rules, 2011 for the first time, cost records and cost details, statements, schedules, etc. shall be kept in good order for the next eight financial years beginning with first year of application of the said Rules.
  3. The Companies (Cost Accounting Records) Rules, 2011 are not applicable to:-
    1. Wholesale or retail trading activities.
    2. Banking, financial, leasing, investment, insurance, education, healthcare, tourism, travel, hospitality, recreation, transport services, business/professional consultancy, IT & IT enabled services, research & development, postal/courier services, etc. unless any of these have been specifically covered.
    3. Companies engaged in rendering job work operations or contracting/sub-contracting activities, and are paid only the job work or conversion charges, such as tailoring, baking, repairing, painting, printing, constructing, servicing, etc.
    4. Companies engaged in the production, processing, manufacturing or mining activities till the time they commences their commercial operations.
    5. Ancillary products/activities of companies incidental to their main operations and wherein the total turnover from the sale of each such ancillary products/activities do not exceed 2% of the total turnover of the company or Rs. 20 Cr, whichever is lower.
  4. The Cost Audit shall not apply to the following cases:-     
    1. Generation of electricity for captive consumption.
    2. Own manufactured products that are consumed exclusively by the company for the sole purpose of production, processing, manufacturing, or mining of its other products or activities that are subject to cost audit.
    3. Hundred per cent Export Oriented Units.
  5. Items falling under the relevant chapter(s) of the Central Excise Tariff Act, 1985 as constitute intermediate or final or allied products of the industry mentioned in the Cost Audit Order dated 30th June, 2011 shall be covered under cost audit and all other items not related to the industry shall be outside the purview of said orders.

Compiled by CMA. Sukhwinder Singh

Member Audit And Assurance Team