Cost Vetting Report
An independent, structured verification of a company's cost base — confirming that what appears in the books reflects what the business actually incurs, at rates and volumes that are commercially defensible.
In the context of an IPO, the cost vetting report gives regulators, underwriters, and institutional investors independent assurance that the expense base presented in the DRHP has been properly scrutinised — and that no significant cost misrepresentations exist.
Why It Matters
The cost verification problem in an IPO
When a company goes public, its cost base becomes a matter of public record. The margins presented in the DRHP will be scrutinised by SEBI, benchmarked by institutional analysts against peers, and used to set valuation expectations for the IPO.
A cost base that hasn't been independently verified is a risk. Costs that are misclassified, overstated or understated, or structured in a way that isn't arm's length create potential for regulatory challenge and investor concern.
The cost vetting report resolves this — before it becomes a problem in the IPO process.
"SEBI raised questions about three specific cost line items in the DRHP. They were resolved quickly because the cost vetting report had already documented the basis for each one."
Scope of Work
Six cost categories we verify
Raw materials & direct costs
Verification that material costs are genuine, arm's length, and consistent with volumes produced and industry benchmarks. Related-party procurement is specifically examined.
Employee costs
Headcount, compensation levels, and benefits verified against industry comparables. Promoter salaries and family member employment terms specifically reviewed for arm's length basis.
Subcontractor & outsourced costs
Independent verification that third-party costs reflect genuine services rendered at commercially reasonable rates — particularly where related parties are involved.
Administrative overheads
Office costs, utilities, communications, and general overhead — verified for completeness and tested against stated business activities and scale.
Selling, marketing & distribution
Commission structures, marketing spend, distributor arrangements, and logistics costs — cross-checked against revenue levels and business model.
Capitalised costs & capex
Review of what has been capitalised versus expensed, depreciation policies, and whether the capitalisation approach is consistent and appropriate.
Specific Verification Areas
What the report confirms
Cost integrity checks
- Costs are real — supported by invoices, contracts, and bank records
- Costs are arm's length — benchmarked against independent market rates
- Related-party transactions are properly identified and disclosed
- Three-year trend in each cost category is consistent with business narrative
- No unusual spike or compression in costs in the pre-IPO period
What you get
- A structured, documented report covering all six cost categories
- Clear disclosure of methodology and verification sources
- Identification of any areas requiring disclosure or correction
- A report that satisfies the requirements of merchant bankers and SEBI
- Documentation that withstands post-listing audit review
Our Process
From data request to final report
Document and data request
We request three years of management accounts, audited financials, invoices, contracts, and supporting documents for each cost category. We also request the company's related-party transaction register.
Cost verification
Each cost category is verified — amounts cross-checked to source documents, volumes tested against operational data, and rates benchmarked against independent market sources.
Related-party analysis
All identified related-party costs are specifically reviewed for arm's length basis, proper documentation, and appropriate classification and disclosure.
Report and findings
A structured cost vetting report is delivered — covering methodology, findings by category, identified exceptions or areas for disclosure, and the overall assessment.