ROLL OF COST ACCOUNTANTS IN EXCISE AUDIT

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WELCOME
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WORKSHOP ON ROLE OF CWAs IN EXCISE AUDIT

• ORGANISED BY
• SIRC OF ICWAI
• PRESENTED BY
• N.SRINIVASAN M.Com, FICWA

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PURPOSE OF THE WORKSHOP

• TO CREATE AWARENESS ABOUT THE D.G. (AUDIT)S
  DIRECTION TO THE DEPT. IN UTILISING THE SERVICES
  OF COST ACCOUNTANTS
• TO DISCUSS WHAT IS EXPECTED OF THE DEPT FROM COST
  ACCTTS AND WHAT C.A. SHOLD DO WHEN THEY GET SUCH
  AUDIT

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TOPICS TO BE DISCUSSED

• TYPES OF AUDIT IN EXCISE DEPT
• PROCEDURES IN EXCISE AUDIT
• WHAT IS EXPECTED OF COST ACCTS
• SCOPE LIMITATIONS OF WORK
• DOCUMENTS TO BE SCRUTINISED
• REPORTING BY COST ACCTTS
• POINTS TO BE NOTED BY CWAs

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RELEVANT EXTRACTS OF D.G.(AUDIT)S LETTER

• THE SERVICES OF COST ACCTTS CAN BE USED FOR
  VALIDATING, INTERPRETING AND ANALYSING
  INFORMATION DISCLOSED BY THE ASSESSEES IN ER-5
  ER6 RETURNSFOR IDENTIFYING ISSUES OF CENVAT
  MISUSE
• THEY CAN ALSO BE USED FOR IDENTIFYING THE
  VALUATION ISSUES DURING DESK REVIEW STAGE IN CASE
  OF SALES TO RELATED UNITS AND CAPTIVE
  CONSUMPTION.

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TYPES OF AUDIT IN CENTRAL EXCISE DEPT

• INTERNAL AUDIT
• SPECIAL AUDIT U/S
• 14A 14AA
• STATUTORY AUDIT BY CAG

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PROCEDURES IN EXCISE AUDIT

• ANNUAL MONTHLY PROGRAMME
• SELECTION OF ASSESSEE
• PRELIMINARY DESK REVIEW
• TOUR OF THE PLANT
• INTERVIEW OF KEY PERSONNEL
• EVALUATION OF INTERNAL CONTL
• PREPARATION OF AUDIT PLAN
• CONDUCT OF AUDIT
• PREPARATION OF AUDIT REPORT

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REQUIREMENT ON THE PART OF CWAs

• WELL VERSED WITH THE ACCOUNTING SYSTEM ADOPTED BY
  VARIOUS UNITS
• SHOULD NOT BE A COST AUDITOR FOR THE SAME UNIT
• CAS-4 CERTIFICATIONS NOT ISSUED FOR THE SAME UNIT
• SOUND WORKING KNOWLEDGE OF CENTRAL EXCISE LAWS
  ESPECIALLY EXCISE AUDIT, CENVAT VALUATION

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WHAT IS EXPECTED OF COST ACCTS

• TO SCRUTINISE ER-5 ER-6 RETURNS
• TO VALIDATE, INTERPRET ANALISE DATA AS PER
  THESE RETURNS
• TO IDENTIFY VALUATION ISSUES IN CASE OF RELATED
  UNITS
• TO VALIDATE INTERPRET CAS-4 CERTIFICATE

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SCOPE OF THE WORK

• SUCH ASSIGNMENTS ARE SELECTIVE IN NATURE
• SERVICES OF CWAs ARE ONLY ADVISORY IN NATURE
• ONLY FOR DESK REVIEW
• REPORT OF CWA FORM PART OF WORKING PAPERS OF DEPT.

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LIMITATIONS OF WORK

• CWA NOT ALLOWED TO VISIT UNITS
• CONFLICT OF INTEREST
• PART OF AUDIT TEAM NOT INDEPENDENT COMPLETELY
• ONLY EMPANELLED CWA ARE CONSIDERED
• ONE/TWO DAYS ONLY

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DOCUMENTS TO BE SCRUTINISED

• MONTHLY RETURNS
• ER-5 ER-6 RETURNS
• ANNUAL REPORT W.R.T. QUANTITATIVE DETAILS
• COST AUDIT REPORT
• CAS-4 CERTIFICATE

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REPORTING

• FORMAT TO BE DESIGNED BY INSTITUTE
• IT IS IN THE NATURE OF ADVISE NOTE
• TO BE SUBMITTED TO SUPT. INCHARGE OF TEAM
• TO BE COMPLETED BEFORE AUDIT SCHEDULE

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POINTS TO PONDER

• TREND ANALYSIS OF CENVAT/DUTY
• RISK LOSS ANALYSIS
• INPUT/OUTPUT RATIO
• VALUE ADDITION
• RECONCILIATION OF DUTY
• OTHER RATIOS

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WHAT TO KNOW FROM PL

• SALE VALUE AND ED PAID
• PURCHASE AND CENVAT
• LOSS BY FIRE/THEFT
• WRITING OFF OF OBSOLETE ITEMS
• DISCOUNT RECEIVED/PAID
• OTHER INCOMES
• DEPRECIATION

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WHAT TO KNOW FROM PL

• ROYALTY/TECH KNOW HOW
• DESIGN DEVT. CHARES
• INSURANCE CLAIMS
• ERRECTION CHARGES ST ANGLE
• EXCISE DUTY PAID

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STATISTICAL TECHNIQUES

• RISK ASSESSMENT
• RIST LOSS ANALYSIS
• TREND ANALYSIS
• ABC ANALYSIS
• INPUT-OUTPUT RATIO

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RISK LOSS ANALYSIS

• IN RESPECT OF
• EXCISE DUTY PAID OF FINISHED GOODS
• CENVAT ON INPUT vs PURCHASES
• SALES REVENUE WITH INCOME TAX AND SALES TAX
  RETURNS

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RLA ED PAID STEP 1

• NOTE DOWN DUTY PAID AS PER RT12
• DEDUCT ED RELATING TO PREVIOUS PERIODS, EXPORT
  GOODS, INPUTS CLEARED AS SUCH, WASTE, MISC HEAD
  OF PLA, ETC.
• NET DUTY PAYABLE ON FINISHED GOODS

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RLA- STEP 2

• TOTAL SALE VALUE AS PER PL a/c
• DEDUCT SALES TAX (as per sales tax returns)
• DEDUCT EXPORT VALUE, SCRAP SALE VALUE, VALUE OF
  EXEMPTED GOODS, TRADING GOODS, ETC.
• GET SALE VALUE OF DUTIABLE GOODS

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RLA STEP 3

• IF NET SALE VALUE IS INCLUSIVE OF ED, CALCULATE
  ED PAYABLE AS
• NET SALE VALUE x16
• 116
• IF NET SALE VALUE IS EXCLUDING ED,
• ED PAYABLE IS
• SALE VALUE x 16/100

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RLA STEP 4

• COMPARE THE ED AS PER RT12 (step 1)
• With
• ED PAYABLE AS PER PL a/c (step3)
• If the difference is very negligible, ignore
• Otherwise, we have to ask for reconciliation by
  the assessee.

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RATIO ANALYSIS

• SALES TO RAW MATERIALS
• SALES TO OTHER INCOME
• SALES TO DISCOUNT
• SALES TO SCRAP SALES
• SALES TO EXPORTS
• SALES TO DEBTORS
• SALES TO EXCISE DUTY

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CONTENT OF COST AUDIT REPORT 1 REPORT BY COST
AUDITOR 2 DETAILS OF ASSESSEE 3 COST ACCOUNTING
SYSTEM 4 FINANCIAL POSITION 5 EXPENSES TO BE
SPECIFIED 6 RATIOS 7 RAW MATERIALS
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8 POWER AND FUEL 9 WAGES AND SALARIES 10 STORES
AND SPARES 11 DEPRECIATION 12 OVERHEADS 13 ROYALTY
/TECH KNOW-HOW 14 SALES 15 ABNORMAL
COSTS 16 OTHER ITEMS 17 AUDITORS OBERVATIONS
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EXPENSES/INCOMES TO BE SPECIFIED

• Expenses to be specified
• Expenditure on spl exhibitions
• Expdr.-abonormal or non-recurring
• Incomes to be specified
• c) Abnormal or non-recurring incomes

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RATIOS RAW MAT

• Cost of production on Cap Employed
• Actual production vs Installed capacity
• Cost of major RM consumed
• Specify Significant transport cost
• Analysis of variances
• Comment of Inventory accounting

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STORES AND SALES

• COMMENT ON THE METHOD
• OF STORES ACCOUNTING
• NON-MOVING ITEMS OVER 2 YRS
• PRODUCT-WISE SALES REALISATION
• EXPORT REALISATION-PROFIT?

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AUDITORS OBSERVATION

• PRINCIPLE DEVIATIONS
• NEGLIGENCE NON-COMPLIANCE
• SCOPE OF INTERNAL AUDIT
• AGREEMENTS OF SALE/PURCHASE
• SEPARATE ANNEX FOR DIFF
• UNITS

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THANK YOU