This article throws light upon the top seven views justifying disclosures of cost audit reports.
(i) The provisions of the Companies (Amendment) Act, 1974 intends to ‘safeguard the interests of the shareholders’. The interests of the shareholders are not merely limited to a satisfactory return on their sums invested.
They, as outsider-participants in the capital funds, are interested to judge and assess the extent of contributed value that their funds could generate for each of the products dealt with by the company. Disclosure of information could sharpen the insight of the intelligent shareholders.
(ii) An industry always strives to gain confidence of the shareholders, investors, creditors, bankers, employees and general public on the working of their business. Higher degree of confidence and reliability can be ensured through disclosure of cost audit information in addition to financial audit information. Non-disclosure on the ground of secrecy of cost information would only arouse suspicion in their minds.
(iii) By maintaining the concept of secrecy and confidentiality with respect to Cost Audit Report—it has, as if, become a matter of domestic concern to the company. But a point arises if the shareholders do not and cannot know what the position is, how can they form any view about the audit report at all?
How can they consider whether it is something which they are satisfied or dissatisfied with? Had the cost audit reports been disclosed, surely the shareholders might be rethinking to invest or disinvest their funds. This way, disclosure of audit information could be a boon in disguise to a company to try and better its performance.
(iv) The Companies Act has prohibited the maintenance of ‘Secret Reserve’ in the company accounts on the ground that such a system may be used to cover up negligence and irregularities. Similarly non-disclosure of cost audit reports can cover up the aspects of management’s negligence and irregularities.
(v) If the term ‘secrecy’ is given proper emphasis for non-disclosure of information relating to manufacturing, production, processing, etc., it would mean either violation or contravention or at least contradiction of the Companies Act.
(vi) The cost audit has to sub-serve certain social objectives. If the concept of secrecy and confidentiality stands on the way in publishing cost audit reports, then the fundamental aim of social objects—disclosure of material information—cannot be attained.
(vii) Under Section 619(3) of the Companies Act applicable in the case of Government Companies, the Comptroller and Auditor General of India’s direction includes details of questionnaires on “Manufacturing and Production accounts, Cost accounts, Growth and working of capital, Profit ratios, etc.,” among others, and the comments in the form of supplement to the audit report are placed before the annual general meeting of the company in terms of Section 619(5) of the Act.
The companies other than these, for which the cost audit is mandatory on a selective basis for certain categories of products, are also social entities and should be viewed similar to the Government Companies and therefore, be subject to similar treatment in so far as the disclosure of cost audit information is concerned.