POWER OF CG TO ORDER MAINTENANCE OF COST RECORDS AND

CONDUCT OF COST AUDIT (Sec. 148)

Order by CG for Whether mandatory? ■ Maintenance of cost

maintenance of records is mandatory only
cost records if such an order is made
by CG.
Order for which ■ Such class of companies
companies? as are engaged in the
production of such goods
as may be prescribed.
■ Such class of companies
providing such services
as may be prescribed.
Nature of cost records ■ Prescribed particulars
to be maintained relating to-
(a) the utilisation of
material;
(b) labour;
(c) other items of cost.
Consultation before -> Before issuing any
making order such order in respect of
any class of companies
regulated under a special
Act,
-> CG shall consult the
regulatory body
constituted or established
under such special Act.

Order by CG for Whether mandatory? ■ Conduct of cost audit is

conduct of cost mandatory only if such an
audit order is made by CG.
Order for which ■ Such class of companies
companies? -
(a) for which CG has
made an order for
maintenance of cost
records; and
(b) which have -
(i) net worth of such
 amount as may be
prescribed; or
(ii) turnover of such
amount as may be
prescribed.
Manner ■ Cost audit shall be
conducted in the manner
specified in the order
made by CG.

Rule 3 of 1. The ministry has introduced six major regulated

Companies sectors which are: Telecommunication Services,
(Cost Records Generation, distribution, and regulation of Electricity,
and Audit) Petroleum industry, Drugs and Pharmaceuticals,
Rules, 2014 as Fertilizers, and Sugar (Industrial Alcohol).
amended on 2. Besides the regulated sectors, the ministry has
31st December also named a number of Non-regulated sectors that
2014 should be included in the purview of the new audit
rules. The major industries in the Non-regulated
sector are Arms and Ammunitions, Turbo Jets, Steel,
Aeronautics, and Coffee and Tea, etc.

(a) Applicability
Regulatory Non-Regulatory
Maintenance Gross Turnover of Gross Turnover of
of Cost Companies covering Companies covering
Accounting products & services products & services
Records Rs. 35 Cr. or more Rs. 35 Cr. or more
Cost Audit 1. Gross Turnover
1. Gross Turnover of Companies
of Companies covering products &
covering products & services Rs. 100 Cr.
services Rs. 50 Cr. or more And
or more And
2. Turnover of
2. Turnover of individual products /
individual products / Services covered for
Services covered for Maintenance of Cost
Maintenance of Cost Records - Rs. 35 Cr.
Records - Rs. 25 Cr. or more
or more
 (b) No Cost Accounting records will be required to
maintained by the companies which is classified as a
Micro Enterprise or a Small Enterprise including as
per the Turnover Criteria under Sub Section 9 of
Section 7 of MSMED Act 2006.
(c) Cost Audit will not be applicable to those
companies whose revenue from exports in Foreign
Exchange exceeds 75% of total revenue or which is
operating from SEZ or which is engaged in generation
of electricity for captive consumption through Captive
Generating Plant.
For this purpose, the term “Captive Generating Plant”
shall have the same meaning as assigned in rule 3 of
the Electricity Rules, 2005.

Rule 5 of the 1. Every company under these rules including all

Companies units and branches thereof, shall, in respect of each
(cost records of its financial year commencing on or after the 1st
and audit) day of April, 2014, maintain cost records in form
Rules, 2014 CRA-1.
2. 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 and
activities for every financial year on monthly or
quarterly or half-yearly or annual basis.

3. 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.

Appointment of ■ Cost audit shall be conducted by a Cost Accountant or

Cost Auditor by a firm of Cost Accountants.
Board [Sec. ■ The Cost Auditor shall be appointed by the Board.
148(3)] ■ The cost audit shall be in addition to the audit
conducted u/s 143.
■ The auditor appointed u/s 139 shall not be appointed
 as the Cost Auditor.
■ The remuneration of the Cost Auditor shall be
determined by the members in such manner as may be
prescribed.
■ The company shall give all assistance and facilities to
the cost auditor.
Notice of 1. The companies prescribed under the said Rules to
appointment appoint an Auditor within one hundred and eighty
and Tenure of days of the commencement of every financial year.
cost auditor & Provided that before such appointment is made, the
Cost Audit (Rule written consent of the cost auditor to such appointment,
6) and a certificate from him or it, shall be obtained;
The cost auditor appointed shall submit a certificate that
—
(a) the individual or the firm, as the case may be, is
eligible for appointment and is not disqualified for
appointment under the Act, the Cost Accountants Act,
1959 and the rules or regulations made thereunder;
(b) the individual or the firm, as the case may be,
satisfies the criteria provided in section 141 of the
Act, so far as may be applicable;
(c) the proposed appointment is within the limits
laid down by or under the authority of the Act; and
(d) the list of proceedings against the cost auditor or
audit firm or any partner of the audit firm pending
with respect to professional matters of conduct, as
disclosed in the certificate, is true and correct.

2. Every 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 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,
along with the fee.

3. The cost auditor appointed as such shall continue

in such capacity till the expiry of one hundred and
eighty 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. The cost
auditor appointed under these rules 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;
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;
Provided that nothing contained in this sub-rule shall
prejudice the right of the cost auditor to resign from
such office of the company.
3A. 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 CG in Form CRA-2 within 30 days of such
appointment of cost auditor.
3B. The cost statements, including other statements
to be annexed to the cost audit report, shall be
approved by the Board of Directors before they are
signed on behalf of the Board by any of the director
authorised by the Board, for submission to the cost
auditor to report thereon.

4. Every cost auditor, who conducts an audit of the

cost records of a company, shall submit the cost
audit report along with his or its reservations or
qualifications or observations or suggestions, if any,
in form CRA-3.

5. Every cost auditor shall forward his duly signed

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.
 6. 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 alongwith full
information and explanation on every reservation or
qualification contained therein, in Form CRA-4 in
Extensible Business Reporting Language format.

7. The provisions of sub-section (12) of section 143

of the Act and the relevant rules made thereunder
shall apply mutatis mutandis to a cost auditor during
performance of his functions under section 148 of the
Act and these rules.

*Casual vacancy of cost Auditor shall be filled by BOD

within 30 days & they will inform CG within 30 days of
such appointment.
Procedure for Case I: The company is Case II: The company is
appointment required to constitute an not required to
and fixation of audit committee constitute an audit
remuneration of committee
the Cost Auditor
(Rule 14)
—> The Board shall —> The Board shall
appoint the cost auditor on appoint the cost auditor.
the recommendations of
the Audit Committee.

—> The Audit Committee —> The remuneration of

shall recommend the the cost auditor shall be
remuneration of the cost fixed by the Board and
auditor. ratified subsequently by
the members.

—> The remuneration of

the cost auditor shall be
considered and approved
by the Board and ratified
subsequently by the
members.

—> Only a cost accountant or a firm of cost accountants

can be appointed as a cost auditor

Disqualifications - > The qualifications, disqualifications, rights, duties

, rights and and obligations
duties of cost - > applicable to auditors u/s 141 and 143 shall, so far
auditor as may be applicable,
- > apply to the cost auditor.

Compliance with - The Cost Auditor shall comply with the cost auditing
Cost Auditing standards.
Standards - ‘Cost auditing standards’ mean such standards as are
issued by the Institute of Cost Accountants of India, with
the approval of CG.
Cost Audit - “cost audit report’’ means the duly signed cost
Report 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;
- The cost auditor shall submit his report to the Board of
directors.
■ Within 30 days of receipt of cost audit report, the
company shall furnish to CG -
(a) a copy of the cost audit report; and
(b) along with full information and explanation on every
reservation or qualification contained in the cost audit
report.
■ CG may call for such further information and
explanation as it may deem fit.
■ The company shall furnish such further information
and explanation within such time as may be specified by
CG.

STATUTORY AUDIT VS. COST AUDIT

Statutory Audit Cost Audit

(1) Applicable for all Companies (1) Applicable only in case of
Specified/prescribed classes of
Companies u/s 148
(2) Auditor examines financial (2) Examines cost records (cost
statements (SA) auditing standards)
(3) Ensures compliance with FRF (3) Ensures Compliance with costing
principles
(4) By Chartered Accountant (4) By Cost Accountant
(5) Appointment- generally by (5) By directors
members
(6) Appointment generally- at- (6) Within 180 days from start of
AGM financial year, (appointment) ↓
Notice to C.G.
(7) Tenure - (7) Tenure -
Till Conclusion of next Till submission of cost audit report
AGM/6th AGM Or
180 days from close of financial
year (Earlier)
(8) Audit report addressed to (8) Cost Audit report to be submitted
members, submitted to BOD to BOD
C.G.
(9) Issued to members (9) Confidential