Synthetic rayon manufacturers: SECP set to ask firms to maintain energy cost records

The Securities and Exchange Commission of Pakistan (SECP) has decided to make it mandatory for companies engaged in production, processing and manufacturing of any type of synthetic and rayon products to maintain comprehensive records, including the quantity and cost of power generated and consumed in production process.
In this connection, the SECP on Wednesday issued a draft Synthetic and Rayon Companies (Cost Accounting Records) Order of 2012 for the following products: viscose staple fibre in all forms (including polyester fibre), viscose filament yarn, viscose tyre yarn/cord and acetate yarn/fibre. The companies manufacturing these products are now required to maintain cost accounting records, including all particulars relating to utilisation of material, labour or other inputs as would be necessary.
According to the order, when power is generated by the company, proper records showing its quantity and the cost of power generated and consumed for the production of rayon in different cost centers shall be maintained in such details as may enable the company to furnish the necessary particulars.
Adequate records shall also be maintained to show the quantity and cost of power purchased. Where power is generated and supplied by another unit of the company to the rayon factory, adequate records shall be maintained to assess the quantity and cost of power so supplied. The rate charged by that unit shall be on a reasonable basis. Necessary records shall also be maintained to show the consumption of power by various departments or cost centers. The cost of power allocated to production shall be on a reasonable basis and applied consistently, the SECP said.
It said that cost accounting records should be kept in such a way to make it possible to calculate from particulars entered therein the total and unit cost of production and cost of sales of each of the products during a financial year. Products specified in the order included viscose staple fibre in all forms (including polyester fibre), viscose filament yarn, viscose tyre yarn/cord and acetate yarn/fibre.
The SECP said that detailed records should also be maintained to indicate expenses incurred for each service department or cost centre like water supply, laboratory, air-conditioning and welfare. These expenses, it said, should be apportioned to other service and production departments on an equitable basis and applied consistently.
The SECP also said that in respect of supplies made or services rendered by the company to its holding company or a subsidiary or a company in the same group or company in which a director of the company was also a director in such companies and vice-versa. Records, it said, should be maintained showing contracts entered into, agreements or understanding reached, in respect of: (a) purchase and sale of raw materials and processing materials; utilisation of plant facilities; supply of utilities; administrative, technical, managerial and other consultancy services. These records shall indicate the basis followed to arrive at the rates charged by them to enable the determination of the reasonableness of the rate charged or paid for such services.
The draft order has been placed on SECP's website, www.secp.gov.pk, for the information of all stakeholders to give their feedback and comments within 30 days of the publication of notification. Otherwise, these will not be considered before final issue.
In order to bring uniformity to the cost records and cost audit reports, the SECP has developed the draft order in consultation with the Institute of Cost and Management Accountants of Pakistan (ICMAP).
Cost audit can only be an effective regulatory tool when cost records are properly prepared and cost audit reports are made on a uniform format for a particular sector.
The SECP strives to make right regulations in the interest of the industry, as a whole and also in the interest of the other stakeholders. Cost audit can provide relevant and credible cost and revenue data to the stakeholders to support their decisions. Cost audit mechanism acts as a measure of efficiency and performance. It can serve as an important tool for effective enterprise governance, competitiveness and strengthening the regulatory mechanism. The SECP's regulatory apparatus aims at promoting sustainable growth by fostering efficiency and transparency.