This article throws light upon the two main case studies for safeguarding verification and certification.
Safeguarding Verification and Certification # Case 1:
Certification of Export Drawback Statements DBK I, II, and III under Duty.
Drawback Rules 1971 vide GOI, Ministry of Finance, Notification No. GSR 1219 dated 1.6.84.
Records for Verification:
The practising cost accountant, while certifying the information required under the DBK statements, should verify the following records in particular:
(a) Records of—(i) catalysts and consumables,
(ii) Raw materials and components, and
(iii) Packing materials, used in the manufacture of the export product;
(b) Records of direct imports of materials/components and foreign materials obtained locally by the manufacturer during the past three months to the date from which the rate is desired to be fixed.
(c) Records of — (i) materials procured from indigenous origin showing the details of procurement even if they are not used in the export product, (ii) wastages, if any, which will have a direct bearing on the accounts maintained, and (iii) information maintained under Customs and/or Excise Bond procedure.
(d) Documents, like invoices, excise Gate Passes in respect of excisable materials that are relevant.
(e) Bill of Entry.
(f) Records of sales of Scrap/Rejections and/or those of the ratio of inputs of indigenous/imported materials to the export products.
(g) Records showing the details of co-products and by-products obtained by the manufacturer.
(h) Statutory Cost Records relating to the items indicated at (a), (b) and (c) above, if the ‘product’ exported is also covered by the Cost Accounting Records Rules.
Safeguards to be taken:
The practising cost accountant would do well to keep in mind the following as precautionary measures:
(a) For DBK I Statement:
(i) The bill of materials consumed for the production of unit quantity of the export product should show the average quantity of each kind of materials or components issued for manufacture and not the actual quantities.
(ii) The imported materials shown have been actually used and were not substituted by indigenous materials.
(iii) The stock of input together with duty incidence on the date of commencement of production should be available as per stock and subsequent procurements shown are adequate to meet the requirement of the input.
(iv) The details of co-products and by-products, and packing materials should be separately shown, and
(v) The information should be authenticated by the Production or Engineering Chief of the company.
(b) For DBK II and III statements:
(i) The amount of duties shown should have been actually paid and duly verified from the relevant-bills of entry,
(ii) The information on materials imported and those purchased locally should relate to last 3 months,
(iii) there should be neither provisional assessment nor refund claim of duty in respect of the input shown, duly verified from the relevant central excise gate passes.
(iv) The selling price of the scrap or rejections should be fair, and
(v) The information should be authenticated by the accounts or finance chief of the company.
(vi) The DBK III statement should give information regarding the material/components of indigenous origin, and
(vii) The drawback calculation sheet showing the expected amount of drawback should be based on the input consumption in DBK I and supported by duty indicated in DBK II and DBK III.
Safeguarding Verification and Certification # Case 2:
Certification of consumption of imported raw materials and components, production and un-utilised value of licences (under the Import Trade Control Policy of Govt. of India)
Records for verification:
The practising cost accountant should verify the following records in particular:
Records of imported raw materials and components consumed (both in quantity and value) by the industrial unit.
Records of production of all products turned out by the industrial unit.
Statutory Cost Accounting Records and Cost Statements, whether audited or not, relating to imported raw materials/components and the products manufactured if such products or any of them are subject to compulsory cost accounting records rules.
Documents indicating Import licence or Release order, c.i.f. value of actual imports, etc..
Register of consumption and Stocks by Actual Users.
Safeguards to be taken:
A cost accountant in practice should take due care as to the following conditions:
(a) The information given in the statement should be complete and accurate such that:
(i) The un-utilised value of outstanding licences in hand on the date of application by the unit is not more than c.i.f. value of consumption for the replenishment of which the import licence is claimed;
(ii) The un-utilised value of licences should be ‘balance value’ available in the Customs’ copy of licences, reduced by the amount—for which firm commitments have been made by opening letters of credit with a public sector agency for obtaining the goods from such agency against the licence in question in accordance with the relevant import policy procedure.
This condition regarding eligibility should be carefully examined.
(b) As regards the particulars of Import licences, only those should be considered which pertain to raw materials and components and are under the Actual Users’ policy and still valid including revalidation granted. If any licence has been surrendered by the applicant unit, it should also be considered if it has not expired.
(c) He should, in his ‘certificate’, categorically mention about the type and description of the records which have been considered by him for verification of the information furnished in the statement.
(d) As regards the particulars of the actual imports, it should be ensured that the information given are with respect to the imports effected against any Import licence issued to the applicant unit including licences obtained under the import policy for Registered Exporters.
(e) The licensing authority may call for further evidence to verify the correctness of the information, and may take any other action in the event of incorrect, false or misleading information.
General safeguards concerning verification and attestation:
(a) Possibility of alteration of figures by the client’s staff in the ‘certified proformae’ and/or in the records connected therewith after issuance of certificate.
Safeguards against this risk could be:
(i) By insisting that no alteration will be made in figures checked;
(ii) By using special ‘ticks’ and ‘symbols’; and
(iii) By initialling the key results or key items of control information in the basic records with the words ‘checked’ or ‘verified’.
(b) Loss of thread of work done for certification through passage of time during which clarification is sought for by the Govt. department dealing with such certificate. Such possibility can be met by retaining the copies of the ‘certificate’ and supporting working schedules or papers or notes in a separate file client-wise maintained for the purpose.