Gaining trust with an audit report

An independent audit of an entity's financial information is a vital service to shareholders, creditors, Government, lenders and other stakeholders. In plain and simple terms, an audit enhances users' confidence that the financial statements do not contain material misstatement (on account of a fraud or error) because they have been examined by the auditor, who is an independent and objective expert who is also knowledgeable about the entity's business and the applicable financial reporting requirements. In other words, an auditor's opinion provides an assurance that the financial statements have been prepared and presented fairly.

An annual report is like self-appraisal

Managements should think beyond current reporting and go for competitive edge with integrated reporting, which requires reporting the company's performance using both financial and non-financial parameters such as

Report on all forms of capital – human, social, natural and so on in addition to financial;

Embed business model and CSR into discussion of strategy and performance;

Combine financial, operational, governance and environmental information in a concise and coherent way; and

Innovate the report with new ideas (for example, eco-friendly annual reports in the form of soft copies sent to shareholders or printing shorter version on recycled paper).

Expanding reach of cost accounting

Over the years, the Ministry of Corporate Affairs had issued the cost accounting records rules for various classes of companies engaged in production, processing, manufacturing or mining activities. In supercession of part of these Rules, the Ministry had issued the Cost Accounting Records Rules, 2011, which apply to a wider range of companies. While conducting an audit of the books and records of these companies, auditors can also access its cost accounting records for details of utilisation of material, labour and other items of cost and for calculatin g the 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. The Rules also provide that the company should reconcile all such cost records and cost statements with the audited financial statements for the financial year, and indicate and explain any variations thereof.

XBRL for cost audit reports too

Companies have been filing their statutory financial statements in XBRL in recent times. The Ministry of Corporate Affairs has now mandated that from 2011-12 onwards companies covered under the cost accounting records rules should file their compliance reports, and cost auditors should file their cost audit reports using XBRL (eXtensible Business Reporting Language) taxonomy.

The taxonomy is being developed for the formats given in the relevant cost accounting records rules. All cost auditors and companies liable to file cost audit reports and compliance reports should do so in XBRL mode after June 30, when the relevant taxonomy and forms are likely to be ready and notified. XBRL is expected to provide a platform for assembling, validating and reviewing data across companies in a more cost-efficient and timely way.

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