These standards are for classifications of costs, capacity determination, overheads, cost of production for captive consumption, determination of average cost of transportation and material cost.

These standards would bring in principle-based accounting to give greater freedom to companies to treat different components of cost in an effective manner, bringing in flexibility and reducing compliance costs for companies.

"These standards would be applicable for all cost accountants in practice," said Kunal Banerjee, president of ICWAI.

At present, these standards are recommendatory only. However, from April next year, all practising cost accountants will have to make use of these standards while carrying out cost audits.

However, the standards are not mandatory for corporate entities, as they are governed under the Companies Act. Only cost accountants are covered under the ICWAI Act.

If a company is not following these standards, cost accountants are asked to make a suitable disclosure or qualification while undertaking cost audit.

Source: Business-standard ICWAI makes six standards mandatory