Cost Records and Cost Audit
Cost Records and Cost Audit
Section 148 of the Companies Act, 2013 mandates that specific companies maintain cost records and undergo a cost audit by a practicing cost accountant. This requirement applies to designated regulated and non-regulated sectors, subject to turnover criteria.
Applicability of Cost Records and Cost Audit
Key provisions under Section 148 of the Companies Act, 2013 include:
Maintenance of Cost Records: Companies engaged in the production of specified goods or provision of services must maintain cost records, documenting the utilization of materials, labor, and other cost components.
• Applicability Criteria: Companies listed under Table A (regulated sectors) or Table B (non-regulated sectors) of the Companies (Cost Records and Audit) Rules, 2014, must maintain cost records if their total turnover exceeds INR 35 crores in the preceding financial year.
• Cost Audit Requirement: Companies meeting the prescribed net worth or turnover thresholds must undergo a cost audit.
• Appointment of Cost Auditor: The Board of Directors is responsible for appointing a cost auditor. Non-compliance may result in penalties ranging from INR 25,000 to INR 5,00,000, with additional penalties for responsible officers and auditors.
Cost Records & Audit Services
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Definition of Cost Records
As per Rule 2(e) of the Companies (Cost Records and Audit) Rules, 2014, cost records refer to books of accounts that capture material utilization, labor, and other cost elements associated with the production of goods or provision of services.
Sectors Covered Under Cost Records Requirement
Companies in the following sectors must maintain cost records if their turnover exceeds INR 35 crores:
Regulated Sectors:
• Telecommunications
• Petroleum Products
• Electricity
• Pharmaceuticals
• Fertilizers
• Sugar
• Railways (Goods/Passenger)
Non-Regulated Sectors:
• Automobiles
• Cement
• Chemicals
• Construction
• Textiles
• Glass
• Metals (Aluminum, Copper, Zinc, Steel, etc.)
• Paper
• Mining and Minerals
Applicability of Cost Audit
Regulated Sectors:
• Overall turnover exceeds INR 50 crores.
• Turnover of products/services under cost records is INR 25 crores or more.
Non-Regulated Sectors:
• Overall turnover exceeds INR 100 crores.
• Turnover of products/services under cost records is INR 35 crores or more.
Exemptions from Cost Audit
Certain companies are exempt from cost audit requirements:
• Companies in the banking, insurance, and NBFC sectors.
• MSMEs as per Section 7(9) of the MSME Development Act, 2006.
• Companies generating more than 75% of revenue from exports (in foreign exchange).
• Companies operating in Special Economic Zones (SEZs).
Compliance Process for Cost Audit
1. Maintain Cost Records: In accordance with Form CRA-1.
2. Appoint a Cost Auditor: Within 180 days of the financial year in Form CRA-2.
3. Submit Cost Audit Report: In Form CRA-3.
4. File Report with the Central Government: Using Form CRA-4.
5. Report Auditor Changes: Using Form CRA-5.
Cost Audit Process
Step 1: Appointment of Cost Auditor
• The Board of Directors must appoint a qualified cost accountant within 180 days of the start of the financial year.
• Shareholder approval is required in a general meeting.
• The appointment must be reported to the Central Government via Form CRA-2 within 30 days.
Step 2: Conducting the Cost Audit
• The auditor examines cost records for compliance with cost accounting standards.
• Cost statements and reports are reviewed for accuracy and completeness.
• Any observations or qualifications are highlighted in the audit findings.
Step 3: Submission of Cost Audit Report
• The cost auditor submits the report to the Board within 180 days of the financial year’s end.
• The report follows the prescribed format (Form CRA-3).
• The company must electronically file the report with the Central Government within 30 days of Board approval.
Compliance with cost records and audit requirements ensures financial transparency, regulatory adherence, and efficient cost management within the organization.
• The report follows the prescribed format (Form CRA-3).
• The company must electronically file the report with the Central Government within 30 days of Board approval.
Compliance with cost records and audit requirements ensures financial transparency, regulatory adherence, and efficient cost management within the organization.
Why choose Cost Audit Services at KRG?
- Gives a detailed picture of the company's financial situation and aids in making sound business decisions.
- Effective cash management is enabled by identifying areas for improvement in cash inflow and outflow.
- Aids in the identification of revenue and spending sources, allowing for improved financial planning and budgeting.
- Improves cash flow and reduces financial risk by optimizing accounts payable and receivable operations.
