Mandatory Audit for Cost and Management Accounts

While in real life organisations typically undertake in a holistic fashion the functions for which they were established, accounting for the ensuing activities of those functions traditionally proceeds on the basis of a sharp dichotomy between their external and internal aspects. As a consequence, there is a well‐established, worldwide tradition that only the external “wing” of accounting is subject to mandatory audit; this article explores the idea of extending this to the internal “wing”. Conceptually the idea does not seem preposterous but compelling. The two wings of accounting constitute not a dichotomy but a dialectic: each presupposes the other, so cannot validly be given different treatment. However, for an institution, a regulatory framework for internal matters may be incompatible with a socioeconomic regime founded on individual autonomy and the spirit of enterprise. India′s pioneering imposition of mandatory cost audit is reviewed and the deep institutional dilemma that surrounds the whole issue is discussed.