Cost Auditors, Cost Records And Cost Audit

APPOINTMENT OF COST AUDITORS :

The audit under sub-section (2) of Section 148 of the Companies Act, 2013 (Act) shall be conducted by a Cost Accountant in practice who shall be appointed by the Board on such remuneration as may be determined by the members (that means Shareholders to fix remuneration) in a following manner:

a. The companies required to get its cost records audited, shall within 180 days of the commencement of every financial year, appoint a cost auditor.

b. Every company referred to in sub-rule (1) 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 thirty days of the Board meeting in which such appointment is made or within a period of one hundred and eighty days of the commencement of the financial year, whichever is earlier, through electronic mode, in form CRA-2.

c. Every 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.

d. 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.

e. Provided that no person appointed under section 139 as an auditor (that means Statutory Auditors) of the company shall be appointed for conducting the audit of cost records:

f. Provided further that the auditor conducting the cost audit shall comply with the cost auditing standards.

Explanation— For the purposes of this sub-section, the expression “cost auditing standards” mean such standards as are issued by the Institute of Cost and Works Accountants of India, constituted under the Cost and Works Accountants Act, 1959, with the approval of the Central Government.

g. An audit conducted under this section shall be in addition to the audit conducted under section 143.

h. The qualifications, disqualifications, rights, duties and obligations applicable to statutory auditors shall, so far as may be applicable, apply to a cost auditor appointed under this section and it shall be the duty of the company to give all assistance and facilities to the cost auditor appointed under this section for auditing the cost records of the company:

COST RECORDS :

The Central Government is empowered to direct, by order, in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed (given below in the tabular format) shall also be included in the books of account kept by that class of companies:

Provided that the Central Government shall, before issuing such order in respect of any class of companies regulated under a special Act, consult the regulatory body constituted or established under such special Act.

a. Every company falling under Companies (cost records and audit) Rules, 2014 (as given below in the tabular format) , including all units and branches thereof, shall, in respect of each of its financial year commencing on or after the 1^st day of April, 2014, maintain cost records in form CRA-1.

However in case of item no. 12 and 24 to 32 under category B i.e. non-regulated items (as given below in the tabular format) it shall apply in respect of each of its financial year commencing on or after the 1^st day of April, 2015.

b. The cost records shall be maintained in such manner so as to enable the company to exercise, as far as possible, control over the various operations and costs to achieve optimum economies in utilisation of resources and these records shall also provide necessary data which is required to be furnished under these rules.

Exception to the Cost Records requirements :

The requirement for cost records under these rules SHALL NOT BE APPLICABLE to a company which is classified as a micro enterprise or a small enterprise including as per the turnover criteria under Section 7(9) of the Micro, Small and Medium Enterprises Development Act, 2006.

Exception to the Cost Audit requirements :

The requirement for cost audit under these rules SHALL NOT BE APPLICABLE to a company covered under the Rules if revenue from exports, in foreign exchange, exceeds 75% of its total revenue OR if it is operating from a special economic zone.

COST AUDIT :

In a case the Central Government is of the opinion, that it is necessary to do so, it may, by order, direct that the audit of cost records of class of companies, which are covered under sub-section (1) of Section 148 and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted in the manner specified in the order.

Provided that the report on the audit of cost records shall be submitted by the cost accountant in practice to the Board of Directors of the company.

a. The cost auditor 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 Board of Directors shall consider and examine such report particularly any reservation or qualification contained therein.

b. Every company covered under these rules shall, within a period of 30 days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein, in form CRA-4.

Punishment for Contravention under the provisions - If any default is made in complying with the provisions of this section,— (a) the company and every officer of the company who is in default shall be punishable in the manner as provided in sub-section (1) of section 147; (b) the cost auditor of the company who is in default shall be punishable in the manner as provided in sub-sections (2) to (4) of section 147. Explanation I.—It is hereby clarified that the case of a firm, the liability shall be of the firm and that of every partner or partners who acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its director or officers. Section 147 (1) If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both. (2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees: Provided that if an auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year AND with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees. (3) Where an auditor has been convicted under sub-section (2), he shall be liable to— (i) refund the remuneration received by him to the company; and (ii) pay for damages to the company, statutory bodies or authorities or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report. (4) The Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of sub-section (3) and such body, authority or officer shall after payment of damages to such company or persons file a report with the Central Government in respect of making such damages in such manner as may be specified in the said notification. (5) Where, in case of audit of a company being conducted by an audit firm, it is proved that the partner or partners of the audit firm has or have acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to or by, the company or its directors or officers, the liability, whether civil or criminal as provided in this Act or in any other law for the time being in force, for such act shall be of the partner or partners concerned of the audit firm and of the firm jointly and severally.

COMPANIES (COST RECORDS AND AUDIT) RULES, 2014

APPLICABILITY OF COST RECORDS AND COST AUDIT:

Sectors	Cost Records	Cost Audit
Companies engaged in the production of following goods or providing following services – A.    Regulated Sectors 1.      Telecommunication services made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature (other than broadcasting services) and regulated by the Telecom Regulatory Authority of India 2.      Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 3.      Petroleum products regulated by the Petroleum and Natural Gas Regulatory Board 4.      Fertilisers 5.      Drugs and Pharmaceuticals; 6.      Sugar and industrial alcohol	Companies having an overall turnover from all its products and services of Rs. 35 Crore or more during the immediately preceding financial year.	Companies having an overall turnover from all its products and services of Rs. 50 Crore or more during the immediately preceding financial year AND The aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained is Rs. 25 Cr or more.
B.     Non-regulated Sectors 1.      machinery and mechanical appliances used in defence, space and atomic energy sectors excluding any ancillary item (Explanation – For the purposes of this sub-clause, any company which is engaged in any item or items supplied exclusively for use under this clause, shall be deemed to be covered under these rules.) 2.      turbo jets and turbo propellers; 3.      arms and ammunitions 4.      propellant powders; prepared explosives (other than propellant powders), safety fuses, detonating fuses, percussion or detonating caps, igniters, electric detonators 5.      radar apparatus, radio navigational aid apparatus and radio remote control apparatus 6.      Tanks and other armoured fighting vehicles, motorised, whether or not fitted with weapons and parts of such vehicles, that are funded (investment made in the company) to the extent of ninety per cent. or more by the Government or Government Agencies 7.      Port services of stevedoring, pilotage, hauling, mooring, re-mooring, hooking, measuring, loading and unloading services rendered by a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports 8.      Aeronautical services of air traffic management, aircraft operations, ground safety services, ground handling, cargo facilities and supplying fuel rendered by airports and regulated by the Airports Economic Regulatory Authority 9.      Steel 10.  Roads and other infrastructure projects corresponding to para No. (1) (a) as specified in Schedule VI of the Companies Act, 2013 11.  Rubber and allied products being regulated by the Rubber Board 12.  Coffee and tea 13.  Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signalling equipment’s of all kind 14.  Cement 15.  Ores and Mineral products 16.  Mineral fuels (other than Petroleum), mineral oils etc. 17.  Base metals 18.  Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radioactive elements or isotopes, and Organic Chemicals 19.  Jute and Jute Products 20.  Edible Oil 21.  Construction Industry 22.  Companies engaged in health services viz. functioning as or running hospitals, diagnostic centres, clinical centres or test laboratories 23.  Companies engaged in education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any business 24.  Milk Powder 25.  Insecticides 26.  Plastics and Polymers 27.  Tyres and Tubes 28.  Paper 29.  Textiles 30.  Glass 31.  Other machinery 32.  Electricals and electronic machinery 33.  Production, import and supply or trading of following medical devices namely Cardiac stents,   Drug Eluting Stents, Catheters, Intra Ocular Lenses, Bone Cements, Heart Valves, Orthopaedic Implants, Internal Prosthetic Replacements, Scalp Vein Set, Deep Brain Stimulator, Ventricular peripheral Shud, Spinal Implants, Automatic Impalpable Cardiac Deflobillator, Pacemaker (temporary and permanent), patent ductus arteriosus, atrial septal defect and ventricular septal defect closure device, Cardiac Re-synchronize Therapy, Urethra Spinicture Devices, Sling male or female, Prostate occlusion device; and Urethral Stents. (Provided that requirement for cost records for item 33 shall not apply to foreign companies having only liaison offices)	Companies having an overall turnover from all its products and services of Rs. 35 Crore or more during the immediately preceding financial year.	Companies having an overall turnover from all its products and services of Rs. 100 Crore or more during the immediately preceding financial year AND The aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained is Rs. 35 Cr or more.