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Audit of Cost Records or simply Cost Audit is covered under Section 148 of the Companies Act, 2013. Section 148 deals with the power of Central Government to issue orders in regarding cost audit & maintenance of cost record, the appointment & remuneration of cost auditor, the penalty in case of an offense but the proper manner & procedure and classes of companies are defined under the Companies (Cost Records and Audit) Rules, 2014.
What is Cost Audit?
Cost Audit is an audit process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilization of material or labour or other items of costs, maintained by the company.
Section 148 of the Companies Act 2013
Cost audit is covered by Section 148 of the Companies Act 2013. The audit conducted under this act shall be in addition to the audit conducted under Section 143.
As per Section 148, the Central Government may by order specify audit and maintenance of record of items of cost in respect of certain companies.
The companies on which cost audit and/or maintenance of cost records applicable are defined under Rule 3 & Rule 4 of The Companies (Cost Records and Audit) Rules, 2014. Following Rules are discussed with sections.
Section 148(1): Central Government to issue orders relating to maintenance of cost records
Section 148(1) deals with Power of Central Government to issue order, in respect of class of companies engaged in the production of such goods or services (defined under Rule 3) as may be prescribed, direct that particulars relating to the utilization of material or labour or to other items of cost as may be prescribed (defined under Rule 3) shall also be included in the books of account kept by that class of companies
For this purpose, Rule 3 ” Application of Cost Records” and Rule 5 “Maintenance of Records” of The Companies (Cost Records and Audit) Rules, 2014 have been issued by the Central Government.
Rule 3: Application of Cost Record
For the purpose of section 148(1), the class of companies includes Foreign Company, having an overall turnover from all its products and services of Rs 35 crore or more during the immediately preceding financial year and engaged in the production of the goods or providing services, specified below-
Rule 5: Maintenance of Records
Every company under rule 3 including all units and branches thereof, shall, in respect of each of its financial year commencing on or after the 1st day of April, 2014, maintain cost records in FORM CRA-1.
The cost records referred to in sub-rule (1) 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.
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.
Section 148(2): Central Government to issue order relating to Cost Audit
As per section 148(2), Central Government, may by order, direct that the audit of cost records of class companies covered under section 148(1) and which have a net worth or turnover of such amount as may be prescribed and audit shall be conducted in the manner specified in the order.
Rule 4: Applicability of Cost Audit
Every company specified in item (A) Regulated Sector of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crores or more and the aggregate turnover of the individual product or products or services for which cost records are required to be maintained under rule 3 is rupees twenty-five crore or more.
(2) Every company specified in item (B) Non Regulated Sector of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crores or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees thirty-five crores or more.
Non-Applicability of Cost audit for Company covered under Rule 3
The requirement for cost audit under rule 4 shall not apply to a company which is covered in rule 3, and-
a. whose revenue from exports, in foreign exchange, exceeds seventy-five percent of its total revenue; or
b. Which is operating from a special economic Zone.
c. which is engaged in the generation of electricity for captive consumption through Captive Generating PIant. For this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the Electricity Rules, 2005.
Section 148(3): Who can be Cost Auditor?
Section 148(3) defines the person who can conduct Cost Audit. As per this section, cost audit under section 148 shall be conducted by a Cost Accountant in practice who shall be appointed by the Board.
Provided that person appointed under section 139 as an auditor of the company cannot be appointed for conducting the cost audit.
Also, Cost Auditor shall comply with Cost Auditing Standards.
Audit under Section 148 shall be in addition to audit conducted under section 143.
Section 148(5): Qualification, disqualification, rights, duties and obligations of Cost Auditor
The qualifications, disqualification, rights, duties and obligations applicable to the auditor under Section 139-148 i.e. Company Auditor, so far as applicable, apply to Cost Auditor. It shall be the duty of the company to give all assistance and facilities to the cost auditor for auditing the cost records of the company.
Also, the audit report on cost records shall be submitted by the Cost Accountant to Board of Directors.
Section 148(6): Submission of Audit Report to Government
A Company shall within 30 days from the date of receipt of a copy of the cost audit furnish the Central Government such report along with information and explanation on every reservation or qualification contained therein in FORM CRA-4.
If, after considering the cost audit report referred to under this section and the information and explanation furnished by the company under sub-section (6), the Central Government is of the opinion that any further information or explanation is necessary, it may call for such further information and explanation and the company shall furnish the same within such time as may be specified by that Government.
Section 148(8): Default/Non- Provisioning of Section 148
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.
For more in detail information regarding Section 148 – click here
For more in detail information regarding The Companies (Cost Records and Audit) Rules, 2014 – click here
Source:Cost Audit Under Section 148 of the Companies Act MCA
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