Cost Audit is an audit process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilisation of material or labour or other items of costs, maintained by the company.
1) - Applicability for Maintenance of Cost Records
According to , Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 provides the classes of companies, engaged in the production of goods or providing services, having an overall turnover from all its products and services of ` 35 crore or more during the immediately preceding financial year, required to include cost records in their books of account.
Cost Audit is an audit process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilisation of material or labour or other items of costs, maintained by the company.
Applicability for Maintenance of Cost Records: Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 provides the classes of companies, engaged in the production of goods or providing services, having an overall turnover from all its products and services of ` 35 crore or more during the immediately preceding financial year, required to include cost records in their books of account.
These companies include Foreign Companies, but exclude
Maintenance of Cost Records: As per Rule 5 of the Companies (Cost Records and Audit) Rules, 2014, every company under these rules including all units and branches thereof, shall, in respect of each of its financial year, is required to maintain cost records in Form CRA-1. The cost records shall be maintained on regular basis in such manner as to facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each of its products
2) - Applicability of Cost Audit ,
1. Regulated sector and
2. Non regulated sector
So , the Companies included in Regulated are ,
So , Classes of companies specified under “Regulated Sectors” are required to get its cost records audited,
if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is 50 crore or more, and the aggregate turnover of the individual product(s) or service(s) for which cost records are required to be maintained under rule 3 is ` 25 crore or more.
Applicability of Cost Audit: Rule 4 of the Companies (Cost Records and Audit) Rules, 2014 states the provisions related to the applicability of cost audit depending on the turnover of the company as follows-
Classes of companies specified under item (A) “Regulated Sectors” are required to get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is ` 50 crore or more and the aggregate turnover of the individual product(s) or service(s) for which cost records are required to be maintained under rule 3 is ` 25 crore or more.
Classes of companies specified under item (B) “Non-Regulated Sectors” are required to get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is ` 100 crore or more and the aggregate turnover of the individual product(s) or service(s) for which cost records are required to be maintained under rule 3 is ` 35 crore or more.
3) Who can be Cost Auditor
The cost audit shall be conducted by a Cost Accountant who shall be appointed by the Board.
But , It may be noted that no person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records.
cost auditing standards" mean such standards as are issued by the Institute of Cost Accountants of India .
Who can be Cost Auditor: The audit shall be conducted by a Cost Accountant who shall be appointed by the Board of such remuneration as may be determined by the members in such manner as may be prescribed.
It may be noted that no person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records.
It may also be noted that the auditor conducting the cost audit shall comply with the cost auditing standards ("cost auditing standards" mean such standards as are issued by the Institute of Cost Accountants of India, constituted under the Cost and Works Accountants Act, 1959, with the approval of the Central Government).
4) Appointment of Cost Auditor-
the companies prescribed under the said Rules to appoint an Auditor within 180 days of the commencement of every financial year
Appointment of Cost Auditor: Rule 6 of the Companies (Cost Records and Audit) Rules, 2014 requires the companies prescribed under the said Rules to appoint an Auditor within 180 days of the commencement of every financial year. However, before such appointment is made, the written consent of the cost auditor to such appointment and a certificate from him or it shall be obtained.
The certificate to be obtained from the cost auditor shall certify that the-
Every referred company shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government within a period of 30 days of the Board meeting in which such appointment is made or within a period of 180 days of the commencement of the financial year, whichever is earlier, through electronic mode, in Form CRA-2, along with the fee as specified
The cost auditor appointed as such shall continue in such capacity till the expiry of 180 days from the closure of the financial year or till he submits the cost audit report, for the financial year for which he has been appointed.
5) Removal of Cost Auditor
The cost auditor may be removed from his office before the expiry of his term, through a board resolution after giving a reasonable opportunity of being heard .
Removal of Cost Auditor: The cost auditor may be removed from his office before the expiry of his term, through a board resolution after giving a reasonable opportunity of being heard to the cost auditor and recording the reasons for such removal in writing.
It may be noted that the Form CRA-2 to be filed with the Central Government for intimating appointment of another cost auditor shall enclose the relevant Board Resolution to the effect.
It may further be noted that the above provisions shall not prejudice the right of the cost auditor to resign from such office of the company.
6)Casual Vacancy in the Office of a Cost Auditor
Any casual vacancy in the office of a Cost Auditor, whether due to resignation, death or removal, shall be filled by the Board of Directors within 30 days of occurrence of such vacancy and the company shall inform the central government in Form CRA-2 within 30 days of such appointment of cost auditor.
Remuneration of Cost Auditor: As per rule 14 of the Companies (Audit and Auditors) Rules, 2014-
in the case of companies which are required to constitute an audit committee-
the Board shall appoint an individual, who is a cost accountant, or a firm of cost accountants in practice, as cost auditor on the recommendations of the Audit committee, which shall also recommend remuneration for such cost auditor;
the remuneration recommended by the Audit Committee under (i) shall be considered and approved by the Board of Directors and ratified subsequently by the shareholders;in the case of other companies which are not required to constitute an audit committee, the Board shall appoint an individual who is a cost accountant or a firm of cost accountants in practice as cost auditor and the remuneration of such cost auditor shall be ratified by shareholders subsequently.
Cost audit report means the duly signed cost auditor’s report on the cost records examined and cost statements which are prepared as per these rules, including attachment , annexure , qualifications or observations attached with or included in such report .
To the Board of Directors of the Company- The cost auditor shall submit the cost audit report in Form CRA-3. He shall forward his report to the Board of Directors of the company within a period of 180 days from the closure of the financial year to which the report relates and the
To the Central Government- The company shall within 30 days from the date of receipt of a copy of the cost audit report prepared (in pursuance of a direction issued by Central Government) furnish the Central Government with such report along with full information and explanation in Form CRA-4 in Extensible Business Reporting Language (XBRL) format in the manner as specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting language) Rules, 2015 along with fees specified in the Companies (Registration Offices and Fees) Rules, 2014.
Central Government may call for such further information and explanation as it may deem fit .
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