Internal Audit Checklist for Production

Production includes  raw material process, including various stages like job method,, batch methods, flow methods etc and  packing material, testing processes. Wastages etc.

Internal auditor have important role to check  production planning document, production data sheet and instructionss,  capacity of machines, availability of raw material, co-ordination with lab department for sending sample and get approval for continuing production. Internal auditor check necessary documents of all the production process.

Here is the Checklist for Internal audit of Production department.

	Production
	Particulars	Checked By	Remarks
A	General
	Check that
1	Proper reporting is done by assistants to respective division in charge & further reporting by in charge to immediate boss
2	Proper listing of products with their respective codes and brand names
3	The record for no. of labour required to work at each machine for standard production is maintained as per given format
4	Calculation of idle time is done on percentage basis and in case the idle time exceeds 25% the reporting of the same to the higher management on daily/weekly basis with proper reasons
5	Calculation of overtime and recording of the same is done by the Production Manger and he further reports it monthly to the Unit head and the HR coordinator of the unit.
6	The total area covered by the production floor with its utility including storage for raw and finished goods is recorded in prescribed format.
B	Machinery
	Check that
1	Fixed Assets Register is maintained & updated in the prescribed format
2	Proper coding for each capital asset
3	New Machinery-
a	The requirement of new machines can arise due to following reasons:
·	Increase in demand
·	Change in technology
·	Change in product line
·	Increase in production
b	Proper assessment is done by Production Manager/In charge approved by the Unit Head
c	Requisition to the purchase department is sent for further processing as per purchase and inventory policy of the Company based on Quotation Analysis.
d	The new machines is properly installed in supervision of the Technical person and the Unit Head and the reporting of the same is done to the higher management after installation.
4	Capacity Analysis of machines is done in the prescribed format
5	The upkeep and maintenance of machine is done on regular basis so as to increase their life and proper track of the machine overhauling is maintained in the prescribed format.
6	Separate machine log book is maintained and updated
7	User manual/instruction kit of machines is displayed through charts and hoardings at various places of factory.
8	Machine maintenance chart is displayed and updated for each machine near by the machine itself.
9	Proper reporting of machine breakdown/shout down is done by production in charge to unit head with valid reasons
10	Shut down for more than 3 hours is reported to Unit Head which further reports to higher management
C	Raw material
	Check that
1	Need assessment is done by the Store-keeper and the authorization is done by the Production Manager/In charge.
2	Purchase of raw material is done as per the Purchase Policy
3	The Quality Controller properly verifies the quality of the raw material by taking samples and records the same in prescribed format.
4	In case the quality of the raw material is not of good quality, the reporting of the same is done to the Unit Head and higher Management .The whole lot of raw material is stored separately and Material Return Form is filled by the Store keeper, duly verified by the Quality Controller.
5	The raw material to the production is issued by the storekeeper/store in-charge after signing the issue slip. The production in-charge give its receiving through its initials on the issue slip after properly weighing the material issued.
6	The issue of raw material for production is on the basis of production plan which is based on demand & availability.
D	PROCESS
	Method of production followed by Company-
·	Job Method
·	Batch Method
·	Flow/Process Method
·	Uniform Method
E	Finished Goods
	Check that
1	The production Manager verifies the final product according to the standard production plan and records the same with deviations, if any in respect of quality and quantity both.
a	Quantity Analysis is done by the Production Manager as set out in master chart of the particular product.
b	Quality Analysis is done by the Quality Controller for the finished goods. The Master Card for the quality check is pasted at each such place where the production process is carried on.
2	Samples taken for above purpose are recorded in the quality check register. Verify the no. of samples taken per lot of production.
3	The finished goods inventory is maintained as per the Purchase and Inventory Policy of the Company.
F	Wastage
	Check that
1	Proper classification of wastage is done into Normal & Abnormal.
2	Classification as abnormal is done if wastage is occurred due to the following:
·	Error in machine
·	Raw material quality issues
·	Power cut with prior information
·	Labour mistake
·	All other wastage which is not normal
2	The wastage is properly recorded in the wastage register/sheet on daily basis along with proper reasons and it is shown in the production MIS in the prescribed format.
3	The monthly average wastage is properly calculated and if the wastage exceeds the standard wastage than necessary steps to reduce the wastage are taken.

Checklist for Internal Audit of Purchases and Inventory Management

Purchase and inventory department is very sensetive department of any organization. Approval, Vendor validation, Quality assessment , communication are important part of Purchase process 

 Inventory audit is based on inventory information and policies, inventory levels, and inventory monitoring.

	Purchase & Inventory Management
	Particulars	Concerned Person	Checked By	Remarks
A	Material Control
	Check proper records for-
1	Availability of materials
2	Control over the investment in material
3	Reasonable Prices
4	Wastage Control
5	Control over the spoilage and obsolescence
B	Purchase
1	There should be at least two personnel for the purchase department with rights and duties as per the Purchase Policy
2	All the purchases are properly authorised as per the policy
	Upto Rs 5000/- Purchase Manager
	Revenue purchase > Rs 5000/- Unit Head
	Capital purchase > Rs 25000/- BOD
C	Requirements
1	Requirement of the Stores Department is in accordance with the production schedule and on the basis of need of the particular item whether it is capital or revenue item is forwarded through Purchase Indent in 2 copies
D	Vendor Registration
1	The Purchase department registers the potential suppliers according to the required items in the prescribed format.
2	Check proper maintenance by Purchase manager of master list of the suppliers
E	Selection / Assessment of the suppliers
1	Check for following aspects while selection of suppliers-
•	Quality
•	Price
•	Terms / Conditions (availability etc.)
•	Transportation Cost
•	Discount
•	Credit Facilities
2	Final selection is vetted by a Team consisting of Purchase Manager, respective departmental head, finance / accounts person and if required the technical person of the company.
3	Tender is raised in the specified format for specific purchases along with terms & conditions of the company
	If any other method is followed, mention it-
4	Proper analysis of the quotations invited in the prescribed format
5	Proper explanatory note is prepared to state the reason for selection of particular supplier by the selection committee
6	Documentation of the analysis summary sheet with the PO
F	Execution of Emergency Purchase
1	Check for following points-
•	Reasons / Conditions
•	Time Basis
•	Price
•	Dealers
•	Others – Credit Terms, Transportation, Taxation etc.
2	Finalised by a Committee comprising of-
•	Purchase Officer
•	Finance / Accounts Officer
•	Respective Department Head
G	Purchase Order
1	PO is prepared in 2 copies in the prescribed manner and is duly authorised
2	Regular follow up of PO for timely receipt of materials
H	Master List for Purchase
	Check proper maintenance by Purchase manager of following master list of the suppliers
I	Receiving and Inspection of the Material :
1	All supplies at receiving department.
2	Check against Purchase Orders.
3	Inspection of material
4	Proper delivery of goods to the concerned department / store.
5	Proper authorization by the receiving authority.
6	All returns, shortage, rejection must be informed to the purchase as well as to the accounts department so that the payment to / debit notes on the suppliers should be made / raised accordingly.
7	Goods Receipts Notes (GRN) should be endorsed to accounts and sent to purchase department.
8	Purchase orders file should be maintained properly.
9	Receiving, unloading and unpacking the material delivered by the suppliers under delivery challans/ Invoices.
10	Checking quality of the material received by the Quality control department.
J	Stores/Inventory Management
1	Proper counting of the material received and recording and classification of the same.
2	After receiving of the required material the invoice should be supported with the Material Inspection Report and sent to the accounts department.
3	Proper authorization and verification of the MIR by the purchase manager as well as the higher authority.
4	Control measures i.e. stock taking & supervision of the material received should be done on periodic basis (Monthly / fortnightly / weekly).
5	Separate authority for purchase and stock taking.
6	Continuous stock verification.
7	Shortage/excess of the material is reported to the purchase as well as the production department.
8	Any discrepancies / damages must be recorded and reported to the concerned authority.
9	There should be a proper control over the Scrap / Wastages / Damages/ Defectives etc.
K	Classification & Coding of Material
1	Proper classification as construction material, consumable stores, spare parts, tools etc.
2	Authentic code no. is allotted for proper distinction / description
L	Material Control System :
	Analysis of Material / inventory according to their value, movement, quantity i.e.
	·        ABC ( High : Medium : Low value )
	·        FSN ( Fast : Slow : Non moving )
M	Inventory Records:
1	Daily Updation of Stores Ledger
2	Check Stores Ledger for proper stock keeping, recording material receipts, issues and balances
3	Issue of material from stores in proper format
4	In case of material transfer from one job to another job, the material transfer note will be prepared in 2 copies
5	Scrap / wastage should be recorded and reported in a proper format

Checklist for Internal Audit - HR

HR Audit - Evaluation of all operational HR policies (recruiting hiring, performance management, training, leave management, termination, employee retention, compensation and benefits)

A review of HR indicators (turnover, employee satisfaction, absenteeism rates, complaints and lawsuits)

	Particulars	Checked By	Remarks…
A	REQUIREMENT ASSESSMENT
	Check that details relating to manpower requirement is informed to the management “1month” well in advance.-
•	No. of Executive required
•	Kind of Executive required
•	Qualification required
•	Experience
•	Salary Slab.
B	Interview
1	Check that interview is taken by a committee appointed for the purpose, comprised of minimum three members-
•	One Functional Head – Respective departmental head.
•	One Higher official – Unit Head
•	One HR Manager /Executive
2	A proper form provided by the HR Executive is duly filled by the candidates.
3	The interview is conducted at Unit level for first phase and the short listed candidates are interviewed by the higher management for final phase.
C	Letter Of Offer
	Offer letter is given to the selected candidates within 2 days for their acceptance
D	Appointment
	Check that
1	Appointment letter is given within 3 days of joining.
2	Personal data form/Service book is filled within 3 days of joining.
3	Terms and conditions associated with appointment presents a clear picture.
4	Complete code of conduct is provided to the candidate who thoroughly reads it
5	Code of Conduct shall be updated timely
E	Training & Development
1	Probation period of 0-3 months is taken into consideration depending upon the work requirements.
2	Lock-in-period of one year on completion of probation period.
3	Performance appraisal during probation period and thereafter is done by the immediate boss and HR Executive and then the same is reported to the higher management.
F	Legal Compliances Relating To Hr-
1	Check for Applicability of various acts and its due compliance by HR Executive-
•	The Apprentices Act,1961
•	The Employee’s Provident Fund and Miscellaneous Provisions Act,1952
•	The Employee State Insurance Act,1948
•	The Factories Act,1948
•	The Minimum Wages Act,1948
•	The Payment of Bonus Act,1965
•	The Payment of Gratuity Act,1972
•	The Payment of Wages Act, 1936
•	The Trade Union Act,1926
•	The Workmen’s Compensation Act,1923
•	Factory and Boilers Act
•	The Industrial Disputes Act, 1947
•	Contract Labour (Regulation and Abolition) Act, 1970
•	The Industrial Employment (Standing Orders) Act, 1946
•	Air (Prevention and Control of Pollution) Act, 1981
•	Water ( Prevention and Control of Pollution) Act, 1974
•	The Environment (Protection) Act, 1986
•	Noise Pollution (Regulation and Control) Rules,2000
•	The Personal Injuries (Compensation Insurance ) Act, 1963
2	All the required registers and documents as per above applicable acts is maintained.
3	Various challans are paid on time (i.e., Challan for PF has to be paid by 15th of next month and Challan for ESI has to be paid by 20th of next month)
4	Consolidated HR records are sent to the HR head for the group including details about all the compliances made by the Company by 25th of next month in the prescribed format.
G	Accidents & Causalities
1	Report of the accident is prepared on the same day in the prescribed format
2	Legal Provisions applicable are complied with.
3	Facility of free medical check-ups is provided to the employees at regular intervals.
H	Attendance
1	Daily attendance is taken either in morning or evening in Attendance Register
2	Separate register is maintained for daily workers & staff on probation
2	This register is checked and signed by two Executive (i.e. by HR Executive and Unit head)
3	Gate pass register is maintained. Entries relating to visitors is made in the register and at the end of the day it is verified by one authority.
I	Salary And Wages Procedure
	Check for-
1	Pay-scale and salary structure of the labour & staff.
2	Calculations relating to allowances, deductions, perquisites etc according to the provisions.
3	Overtime & Idle time workings
4	Salary payment by 10th of next month.
5	Proper workings of salary sheet and its authorisation thereon
J	Leave Procedure
	Various leaves taken by employees are classified in Paid, Casual, Sick and are allowed as per the HR Policy
K	TERMINATION/RESIGNATION
	Proper notice or salary in lie thereof before resignation/termination as per HR Policy
L	GRIEVANCE HANDLING
1	Any grievance relating to workplace is informed to immediate bosses or the concerned unit head who further reports it to the higher management.
2	Reporting is done both in verbal and written format.
M	EMPLOYEE RECREATIONAL POLICY
1	After completion of 18 months of service, promotion or hike in salary on the basis of performance appraisal and as per management decision.
2	Bonus amount would be calculated/decided depending upon the employee performance and at the discretion of management.
3	Employees should submit Self Appraisal Performance Report on quarterly basis.
4	Employee birthdays and anniversaries is given due consideration one Greeting card should is sent on behalf of the Company.
5	A suggestion or a compliant box is kept and it is the responsibility of the HR Department to check the same and reporting of the same to the unit head.
N	REIMBURSEMENT OF EXPENSES
	Expenses are reimbursed to the employees incurred for official purposes as per the decision of management committee.

Document Listing for NBFC for Registration and Certification from RBI

List of documents to be be submit with application from NBFC 

(Non Banking Financial Companies) to RBI.  

Here is documents descriptions for NBFC (Min.NOF requirement Rs. 200 lakh) 
..

SrN	Description
1	Minimum NOF requirement Rs. 200 lakh.
2	Application to be submitted in two separate sets tied up properly in two separate files.
3	Annex II to be submitted duly signed by the director/Authorized signatory and certified
	by the statutory auditors.
	Annex III (directors’ profile) to be separately filled up for each director. Care should be
4	taken to give details of bankers in respect of firms/companies/entities in which directors have substantial interest.
5	In case the directors are associated or have substantial interest in other companies,
	indicate clearly the activity of the companies (whether NBFC or not).
6	Board Resolution specifically approving the submission of the application and its
	contents and authorising signatory.
	Board Resolution to the effect that the company has not accepted any public deposit, in
7	the past (specify period)/does not hold any public deposit as on the date and will not accept the same in future without the prior approval of Reserve Bank of India in writing.
	Board resolution stating that the company is not carrying on any NBFC activity/stopped
8	NBFC activity and will not carry on/commence the same before getting registration from
	RBI.
9	Auditors Certificate certifying that the company is/does not accept/is not holding Public
	Deposit.
10	Auditors Certificate certifying that the company is not carrying on any NBFC activity.
11	Net owned fund as on date.
12	Certifying compliance with section 45S of Chapter IIIC of the RBI Act, 1934 in which
	director/s of the company has substantial interest.
13	Details of changes in the Memorandum and Articles of Association duly certified.
14	Last three years Audited balance sheet along with directors & auditors report.
15	Details of clauses in the memorandum relating to financial business.
16	Details of change in the management of the company during last financial year till date
	if any and reasons thereof.
17	Details of acquisitions, mergers of other companies if any together with supporting
	documents.
18	Details of group companies/associate concerns/subsidiaries/holding companies.
19	Details of infusion of capital if any during last financial year together with the copy of
	return of allotment filed with Registrar of Companies.
20	Details of the bank balances/bank accounts/complete postal address of the
	branch/bank, loan/credit facilities etc. availed.
21	Business plan for next three years indicating market segment to be covered without any
	element of public deposits.
22	Cash flow statement, asset/income pattern statement for next three years.
23	Brief background note on the activities of the company during the last three years and
	the reasons for applying for NBFC registration.
	II(b) is the company engaged in any capital market activity? If so, whether there has
24	been any non-compliance with SEBI Regulations? (Statement to be certified by
	Auditors).
25	Whether any prohibitory order was issued in the past to the company or any other

Sr No.	Description
	NBFC/RNBC with which the directors/promoters etc. were associated? If yes, details
	there of.
26	Whether the company or any of its directors was/is involved in any criminal case,
	including under section 138(1) of the Negotiable Instruments Act? If yes, details thereof.
27	Whether the company was granted any permission by ECD to function as Full-fledged
	Money Changers?
28	Whether the company was/is authorised by ECD to accept deposits from NRIs.
29	Whether “Fit and Proper” Norms for Directors have been fulfilled.

Factory Canteen Exempted from Service Tax w.e.f. 22.10.2013

Service Tax Exemption to Factory Canteen‏

The CBEC has exempted Services provided in relation to serving of food in canteen maintained by a Factory vide Notification No. 14/2013-ST dated October 22, 2013 which inserted 19A to the Notification No. 25/2012-ST dated June 20, 2012 (Mega Exemption).

“19A. Services provided in relation to serving of food or beverages by a canteen maintained in a factory covered under the Factories Act, 1948 (63 of 1948), having the facility of air-conditioning or central air-heating at any time during the year”.

Hence, services provided in relation to serving of food or beverages by a canteen having the facility of air-conditioning or central air-heating at any time during the year maintained in a factory covered under the Factories Act, 1948 will be exempt w.e.f. 22.10.2013.

Accounting Journal Entries for Taxation - Excise, Service Tax, Vat, Tds

We all knows the importance of  provision and compute of tax liabilities. Liabilities which may be  monthly/quarterly/half-yearly or yearly basis, accounting journal entries is as equal important for the same. Here we will see how to make accounting journal entries of  for taxation

I  Value Added Tax (VAT)
The organizations engaged in Sale and purchase transactions have to pay Vat liability. When they purchase material Vat is paid on purchases and when they sell material Vat is collected on material.


Vat paid on purchase of material-Input
Vat paid on Sale of Material-Output
Output amount is adjusted with the input and the balance is paid to the department. Entries to be made are:-

At the time of Purchase of Material
           Purchase Dr………….
           Vat Input Dr……………
           To Creditors……………………
At the time of Sale of Material

                Debtors Dr……………….
               To Sales………………………….
               To Vat Output…………………..
At the time of Adjustment
           Vat Output Dr………………..
           To Vat Input……………………………..
           To Vat Payable (If Output>Input)………………………………

At the time of Payment
Vat Payable Dr…………………………..
To Cash/bank

II  Service Tax

When services are received:-
       Expenses Dr………………………
       Service tax Input Dr………………
       To Party

When services are provided
    Debtors Dr……………………
    To Revenue………………………
    To Service tax Output……………

At the time of Adjustment
    Service tax Output Dr…………….
    To Service Tax Input…………………….
    To Service tax Payable……………………….

At the time of Payment
    Service tax Payable Dr………………….
    To Cash/bank…………………………………….

III Excise Duty

At the time of Purchase
    Purchase Dr……………..
    Central Excise Input Dr………..
    Education Cess Input Dr……………….
    Secondary and Higher Education Cess Input Dr.
    To Creditors

At the time of Sale
    Debtors Dr…………….
    Manufacturing Duty (Basic+Education Cess+Secondary & higher education cess) Dr.
    To Central Excise Output …………………..
    To Education Cess Output…………………..
    To Secondary & higher education cess Output……………
    To Sales (Including excise duty amount)…………………………………………………..

IV   Tax Deducted At Source


At the time of deducting TDS
    Expenses Dr……………
   To TDS Payable………………….
   To Party………………………………
At the time of deposit of amount of TDS
   TDS Payable Dr………………………
   To Cash/Bank………………………………………

At the time of booking of income
    Party Dr…………………….
    TDS deducted………………………
    To Revenue receipts……………………………….

At the time of receipt of Income
   Bank/Cash Dr………………………..
   To Party……………………………………..

Methods of HRA exemption calculation

As per the Indian income tax law, the HRA exemption should be calculated as the least of the following.
1. Rent paid in excess of 10% of basic salary.
2. Actual HRA received by the employee.
3. 40% of basic salary, if the location of the residence is in a non-metro city/town or 50% of basic salary, if the location of the residence is in a metro city.

From the above “least of three” rule, it is clear that HRA exemption amount is determined by a number of factors — Basic pay, location of the residence, rent paid by the employee, and the HRA paid to the employee.


So far, so good. The “least of three” rule looks easy to understand and implement. However, the same rule can be applied in different ways to create different methods of HRA exemption calculation.

Let us assume that an employee, who lives in a metro city, takes home a monthly Basic pay of Rs 50,000, monthly HRA of Rs 25,000, and pays a monthly rent of Rs 25,000. As long as everything remains constant throughout the year, there is no complication. The problem starts once any of the factors changes. Let us assume that the employee has a loss of pay for a month and half say from August 1 to September 15, but the employee pays full rent in the months of August and September. Let us look at the different methods of calculating the exemption.

Method 1 – Annualized HRA exemption calculation

Organizations using this method calculate HRA exemption by determining the values of the different factors (Basic pay etc.) for the year and applying the “least of three” rule.

a. Basic pay for the year = Rs 50,000 x 10.5 months (on account of loss of pay) = Rs 525,000.
b. HRA paid to the employee = Rs 25,000 x 10.5 months (on account of loss of pay) = Rs 262,500.
c. Rent paid by the employee for the year = Rs 25,000 x 12 = Rs 300,000.
HRA exemption calculation
1. Rent paid in excess of 10% of Basic salary = Rs 300,000 – Rs 52,500 = Rs 247,500.
2. Actual HRA received by the employee = Rs 262,500.
3. Fifty percent of Basic salary (since the location of the residence is in a metro city) = Rs 262,500.

The HRA exemption for the year is the least of the above, which is Rs 247,500.


Method 2 – Monthly HRA exemption calculation

Organizations using this method calculate HRA exemption each month, and add the monthly HRA exemption values to arrive at the exemption for the year.

1. Monthly HRA exemption amount — after applying the “least of three” rule for each month — from April to July and from October to March = Rs 20,000 per month.
2. Monthly HRA exemption amount — after applying the “least of three” rule — for August = Rs 0.
3. Monthly HRA exemption amount — after applying the “least of three” rule — for September = Rs 12,500.

The total of HRA exemption amounts across all months = Rs 212,500 for the year.


Method 3 – HRA exemption calculation for each period of input change

As per this logic, whenever any of the input parameters (Basic pay, Rent paid, HRA, and Metro or Non-metro) changes for an employee during a year, the HRA exemption is calculated. In other words, the year is divided into as many periods as dictated by changes in any of the input parameters, and HRA exemption is calculated for each of the periods. Finally, the HRA exemption amounts for the different periods are aggregated to arrive at the HRA exemption amount for the year.

With regard to the illustration presented earlier, the year is divided into 3 periods, as follows.
Period 1: From April 1 to July 31 – when there is no change to any of the input factors.
Period 2: From August 1 to September 15 – when Basic pay and HRA change (became zero) on account of loss of pay.
Period 3: From September 16 to March 31 – when there is no change to any of the input factors.

HRA exemption calculation
HRA exemption for period 1– from April 1 to July 31 = Rs 80,000.
HRA exemption for period 2 — from August 1 to September 15 = Rs 0.
HRA exemption for period 3 — from September 16 to March 31 = Rs 130,000.

The total of HRA exemption amounts across all periods = Rs 210,000 for the year.

The 3 methods yield different annual HRA exemption amounts – Rs 247,500, Rs 212,500, and Rs 210,000.


Which is the correct method?

This is an important question to answer. Depending on the method an organization uses, the tax liability for the employee would be higher or lower, and in turn the government’s receipt from tax on salary income would be higher or lower.

The above illustrations present HRA exemption calculation in the event of changes in Basic salary and/or HRA. In the event of Basic salary or HRA not changing, but the rent amount changing or the location of the residence changing (say, from metro to non-metro), there will still be differences in HRA exemption calculation across the 3 methods.

While there is no explicit instruction from the income tax department as to which method should be used, we believe the “period” method (Method 3, described above) goes well with the provisions of Section 10(13A) of the Income Tax Act.

Rent Agreement format

RENT AGREEMENT

This rent agreement has been made today the …………., in the year …………… and ………….. by and between:

1. Mr………………….., S/o Shri ………………, Aged about…….. years,  R/o ……………………. (herein after called the frist party)

2. Mr. ………….. S/o Shri …………….., Aged about ……..years, …………………………………. (herein after called the second party).
                                                           

THEREFORE, the first party approached the second party and after due discussions, both the parties have agreed for giving & having on rent the said premises respectively.

After the Finalization, both the parties here to have agreed to reduce in to writing the terms & conditions of this Rent Agreement as under:

1. That the tenancy shall be deemed to commence with effect from …………… for a period of  …………years  which can further be renewed as per mutual agreement.

2. That the rent of the premises shall be Rs.………… per month and shall be payable within seven days of the commencing month.

3. That first party shall utilize the premises for its office work and shall not sublet any of the part or whole of the premises to any other person or company etc.

4. That the yearly repairs & white washing etc., will be carried out by the second party at its on cost & expenses.
5. All Municipal and other taxes and levies, including the maintenance charges in respect of the licensed premises will be paid and borne by the second party alone.

6. That the second party, whenever need the premises, can get the premises vacant by way of giving notice of one month in writing to the first party.

IN WITNESS WHEREOF, both the parties have set their respective hands and signatures on the day, and date mentioned here in above.

……………………            ………………………………
    Land Lord   Tenant
       

WITNESS:

1.

2.

Cost Audit Importance and Compliance for Companies

As the name suggests “Cost audit” is the audit of cost records. It is the verification of the cost of production of any product, service or activity on the basis of accounts maintained by an enterprise in accordance with the accepted principles of cost accounting.

The Government of India has now made it mandatory for specified industries to conduct a cost audit so as to evaluate of the efficiency of operations and the propriety of management actions. Ministry of Corporate Affairs (MCA) has henceforth, set the stage for collection of the authentic industry information, duly approved by Board of Directors and verified by a cost auditor for use by various ministries.


Why has cost audit become mandatory?
Cost audit has been made mandatory for specified industries only. Since these industries generally cater to essential commodities which are required by the public at large and play an important role in the economic development of the country, they have come under the scope of cost audit. Some of the reasons behind making it mandatory are as below:

1. To monitor any lacunae in the cost accounting system for certain industries, which provides the basis for decision making by the management.
2. The data from these reports, helps the government in fixing prices of various essential commodities like fuel, power, raw materials etc
3. The regulators can take decisions based on the data and can keep a control on certain malpractices like over or under pricing and other unethical practices.
4. This data helps companies in regulating various costs and optimal utilization of resources. The true picture of the assets is placed before the management.
5. It helps the consumers getting products at reasonable prices.


Applicability
The MCA vide notification dated 3rd May, 2011 had issued mandatory cost audit orders. It is applicable to every company including a foreign company as defined u/s 591 of the Act which is engaged in Manufacturing, Production, Processing, Mining Activities and satisfies any of the following criteria :‐
1. Aggregate value of net worth on the last day of preceding financial year was more than 5 crores; Or
2. Aggregate value of the turnover of sales and other activity of all the products exceeds 20 crores in the preceding year; Or
3. The debt or equity securities of the company are listed or are in process of getting listed on any of the stock exchanges in India or outside India.

Industries covered in the ambit of Cost audit
Industries which are covered include those engaged in production, processing, manufacturing or mining of the products along with Telecommunication, Petroleum, Electricity, Sugar, Fertilizer and Pharmaceutical Industry to name a few.
A complete list of Industries/products is available at the MCA website at http://www.mca.gov.in/Ministry/mcaoffices/CAB_Order_06nov2012.pdf

Compliances  under Cost Audit
A. Maintenance of records
• Every company to which these rules apply, including all units and branches shall, in respect of each of its financial year commencing on or after the 1st day of April, 2011, keep cost records.
• All cost records and statements have to be maintained for a period of atleast 8 years.

B. Reporting 
• A compliance report (along with the annexure) has to be submitted to the Central Government in XBRL format for each financial year (FY) duly certified by a cost auditor,
• The report is to be submitted within 180 days from the close of the FY.
• The Annexure has to be approved by the Board before submission to the Central Government.
• It shall be signed by the Company Secretary and at least one Director on behalf of the company. In the absence of Company Secretary in the company, the same shall be signed by at least two Directors.
• Forms and formats have been prescribed by MCA for the purpose of compliance as below:
 Form 1 – Cost Audit Report to be filed with the Central Government
 Form B – Form of Compliance Report
 Annexure to form B – Annexure of Compliance report

C. Appointment of Cost Auditor
The procedure for appointment of cost auditor has been amended vide circular 15/2011 dated April 11, 2011 as below:
• Company to issue a formal letter proposing Appointment / Re-Appointment of Cost Auditor after discussion with the Board
• Cost Auditor to issue a certificate for his qualification and independence to the company
• Company to e-file Form 23C with the Registrar of Companies for approval of Central Government within ninety (90) days from the date of commencement of each financial year, for such appointment.
• The company to issue a formal letter of appointment within 30 days of approval by the Central Government. The application shall be deemed to have been approved within 30 days if nothing to the contrary is heard from the Central Government.
• Appointed cost auditor to intimate the Registrar of Companies in form 23D along with the copy of appointment letter.
Penalties
The Company shall be liable to be punished with fine which may extend to INR 5000 along with the cost auditor who has made false certification, and every officer of the company who is in default shall be liable to be punished with imprisonment for a term which may extend to three years, or with fine which may extend to INR 5000 or with both.
Conclusion
The cost audit becoming mandatory for some important industries is a good step in the right direction. With cost reports enabling companies to get appropriate cost and revenue information, strategies benefitting the various stakeholders can be formulated and implemented. It is now the responsibility of the boards of companies to make use of these reports to strengthen its reviewing mechanism and optimally use its resources. 

Appointment of Statutory Auditor for the financial year 2013-14

Date:

To,

Mr.XYZ

M/s ABCD & Associates

Chartered Accountants

----------------------,

------------------------,

---------------------.

Sir,

Sub: Appointment as Statutory Auditor for the financial year 2013-14.

We are pleased to inform you that your firm has been appointed as Statutory Auditors of our Company for conducting the audit under Section 224 of the Companies Act, 1956, vide the resolution (reproduced below) passed at the 10^th Annual General Meeting of the Shareholders which was held on 30^th September, 2013.

 “RESOLVED THAT M/s ABCD & Associates Chartered Accountants (Firm Reg.no.------------) be and is hereby appointed as the auditors of the company in place of the retiring auditors M/s PQRST & Associates Chartered Accountants (Firm Reg.no -----------) to hold the office of the auditors till the conclusion of the next annual general meeting on such remuneration as may be determined by the Board of directors of the company.”

We will be grateful if you would kindly intimate to ROC about your appointment in prescribed format and furnish us the SRN for future reference along with your acceptance of this appointment.

Thanking You,

Yours Faithfully,

For Name of Co.

Director