MCA asks cost auditors to tap AI to better detect inefficiency
Jan 2, 2025
Synopsis
The corporate affairs ministry has directed cost auditors to focus on potential risk areas, assess cost inefficiencies' impact on financial health, and utilize AI to identify unnoticed patterns or anomalies. Cost records are essential for tax calculations, funding for government projects, and official subsidies and incentives.
The Ministry of Corporate Affairs (MCA) has asked cost auditors to focus on potential risk areas, evaluate the impact of cost inefficiencies on companies’ financial health and take advantage of artificial intelligence (AI) to plug loopholes.
The use of AI would help cost auditors “identify patterns or anomalies that might otherwise go unnoticed,” according to the ministry’s latest communication to stakeholders, reviewed by ET.
Cost records of companies are essentially books of accounts relating to expenses on materials, labour and other items used for producing goods or rendering services, in sync with Section 148 of the Companies Act. Currently, the cost audit rules cover 39 sectors.
The cost accounts are crucial for tax computation and obtaining funds for government project execution or subsidies and incentives under various official programmes.
Authorities also use cost audit reports of companies to frame policies for tariff, subsidy, incentives and reducing time and cost overrun of the infrastructure projects, among others. Company managements, too, use the audits for identifying cost inefficiencies.
“Auditors should focus on areas of material significance and potential risks, identifying key cost drivers, analysing variances, and evaluating the impact of cost inefficiencies on the company's overall financial health,” the ministry said.
AI and tech push
The ministry pitched for greater adoption of technology to let auditors process large volumes of data more efficiently, expand the sample size and improve detection of anomalies.
“By using Al-driven analytics, auditors can reduce audit risks, increase accuracy, and uncover deeper insights into cost structures,” it said.
Earlier this year, a high-level government panel recommended a substantial increase in the turnover limit of companies mandated to keep and audit cost accounts to ease the compliance burden.
The committee under Ashu Mathur, chief cost advisor in the ministry’s expenditure department, also suggested that cost records be maintained in all government infrastructure projects of at least Rs 100 crore.
[The Economic Times]
