COST ACCOUNTING STANDARDS

 COST ACCOUNTING STANDARDS

To develop Cost Accounting Standard on important issues relating to Cost and Management Accounting, the ICWAI established the Cost Accounting Standard Board (CASB).

Objectives of Cost Accounting Standards:

1] To help Indian industry and the Government towards better cost management.

2] To assist the management to follow the standard cost accounting practices in the matter of compliance of statutory obligations.

3] To assist the Cost Accountants in preparation of uniform cost statements.

4] To equip the profession with better guidelines on standard cost accounting practices.

5] To provide guidelines to Cost Accountants to make standard approach towards maintenance of Cost Accounting Record rules and undertaking Cost Audit under Section 209 and 233 B of the Indian Companies Act, 1956 and various other laws like Income Tax Act, Central Excise Act, Customs Act, Sales Tax (VAT)etc.

Generally Accepted Cost Accounting Principles (GACAP)

The compilation of GACAP by the ICWAI is a unique effort to record principles and practices in the discipline of Cost Accountancy in India, which takes into consideration the global practices as well.

Objectives of GACAP:

1] To codify the GACAP as applied in the Indian industry.

2] To narrow down diversities in cost accounting practices facilitating the process of development of cost accounting standards.

3] To provide a reference source to industry and practitioners in preparation and attestation of cost statements, where specific cost accounting standards are yet to be issued.

4] To provide a reference source to all the stakeholders in the understanding and interpreting the cost statement.

5] To provide a base for monitoring the evolution of new concepts and practices in cost accounting and to codify them as and when they become generally accepted.

Scope:

The scope is to codify the cost accounting principles to be followed by business and other entities in India in preparing and presenting cost information more particularly the General Purpose Cost Statements covered by Cost Audit. This document also encompasses the generally accepted cost accounting practices presently being followed by such entities.

Principles applicable to Elements of Cost:

This section deals with GACAP applicable to individual elements of cost.

1] When an element of cost is accounted at standard cost, variances due to normal reasons are treated as a part of the element wise cost. Variances due to abnormal reasons will not form a part of the cost.

2] Any subsidy, grant, incentive and any such payment received / receivable with respect to the input cost is reduced from cost for ascertainment of the cost to which the cost pertains.

3] Any abnormal cost where it is material and quantifiable will not form part of a cost.

4] Costs reported under various elements of cost will not include imputed costs.

5] The measurement for cost accounting purposes will follow the same principles as set out in Generally Accepted Accounting principles, applicable to the concerned entity.

Presentations and Disclosures:

1] Cost statements must contain total cost, unit cost per unit of output.

2] Output quantities with unit of measure must appear in the Cost statement. 

3]     Input costs are best broken up as quantity and rate.

4] The basis of valuation of inputs must be stated.

5] The basis of cost distribution to cost objects or cost centres must be disclosed. 

6] Costs incurred in foreign currency must be stated separately.

7] Any costs excluded must be disclosed.

8] Transactions with related parties must be highlighted or disclosed separately.

9] Changes in costing principles and methods applied must be disclosed with the effect.

10] Cost details of all ancillary products or activities may be maintained under a miscellaneous group and disclosed appropriately.

Constitution of CASB:

The CASB is constituted by the Council of the ICWAI. The chairman and other members are appointed and nominated by the Central Council of the ICWAI. The technical Director is the secretary of the CASB. The term end period of appointment is decided by the Council of the ICWAI.

Scope and Applicability of Cost Accounting Standards:

The standards issued by CASB are recommendatory in nature and every member of the ICWAI is expected to honour the same. Standards comply the legal requirement in respect of the matter covered by it, however, the standards by their very nature are more definite and specific than their legal requirements. The standards are applicable in preparation of cost statements and other documents where the concept embedded in the standard is applicable.

COST ACCOUNTING STANDARDS:

1] Cost Accounting Standard No-6: “Material Cost”

2] Cost Accounting Standard No-7: “Employee or Labour Cost”