Cost Audit Branch under the Ministry of Corporate Affairs is manned by professionals drawn from the Indian Cost Accounts Service (ICAS) and primarily deals with sections 209 (1) (d) and 233B of the Companies Act, 1956.
The Branch, under section 209 (1) (d) formulates & notifies Cost Accounting Records Rules (CARRs) for various industries. Such rules prescribe the manner in which cost records are to be maintained by specified class of companies. The Branch also undertakes rationalization of existing CARRs to reflect the changes in technology, manufacturing processes and accounting standards.
Under section 233B, orders are issued to individual companies for conducting cost audit of cost records in accordance to Cost Audit Report Rules from a Cost Auditor appointed by the Board of Directors with the prior approval of the Ministry.
Scope of Functions
Cost Audit Branch (CAB) under the Ministry of Corporate Affairs performs the following functions:
1. Matters falling under section 209 (1) (d) of the Companies Act, 1956:
* Prescription of Cost Accounting Records Rules in respect of various industries / products.
* Rationalization of existing Cost Accounting Record Rules to reflect the changes in technology, manufacturing processes and accounting standards.
* Holding of meeting of the Informal Advisory Committee, which includes all the three professional Institutes (ICAI, ICSI, and ICWAI), Tariff Commission and Ministry of Finance, Industry Associations, etc. for finalization of new Rules and amendments in the existing Rules.
* Laying the notified rules in both Houses of Parliament after legal vetting and publication in the Gazette.
2. Matters falling under section 233B of the Companies Act, 1956:
* Prescription of Cost Audit Report Rules, including review and rationalisation of the existing ones.
* Issue of Cost Audit Orders on eligible companies.
* Processing of applications (Form 23C) for approval of appointment of Cost Auditors.
* Processing of requests for exemption/withdrawal of Cost Audit Orders.
* Receipt and review of Cost Audit Reports.
* Providing Cost Audit Reports and other information/analytical data to other Government departments/organizations/agencies, as and when required.
* Monitoring of compliance with the provisions of Section 209 (1) (d) and Section 233B of the Companies Act, 1956 and issue of show cause notices to defaulting companies.
* Initiating prosecution proceedings against the errant companies for defaults/violations by referring the matter to the concerned Registrar of Companies.
* Initiating action against the errant Cost Auditors under Section 224 and Section 233B of the Companies Act, 1956.
3. To carry-out data mining and industry-wise economic analysis of all industries/sectors.
4. Inspection of companies under Section 209A (1) of the Companies Act.
5. Providing expert opinion on various matters as referred to Cost Audit Branch.
6. Attending to all Court and Parliament matters relating to Cost Audit Branch.
Cost Accounting Record Rules (CARRs)
In exercise of the powers conferred by sub-section (1) of section 642, read with clause (d) of sub-section (1) of section 209 of the Companies Act, 1956, Central Government has prescribed Cost Accounting Record Rules for various industries and products. All companies engaged in production, processing, manufacturing or mining activities, in respect of industries or products specified in the Cost Accounting Record Rules, as applicable, are required to keep at its registered office proper books of account relating to utilisation of material or labour or to other items of cost as prescribed under the said Rules.
These rules do not apply to a company, –
1. wherein, the aggregate value of machinery and plant installed as on the last date of the preceding financial year, does not exceed the limit as specified for a small scale industrial undertaking under the provisions of Industries (Development and Regulation) Act, 1951 (65 of 1951); and
2. the aggregate value of the turnover made by the company from sale or supply of all its products or activities during the preceding financial year does not exceed ten crores of rupees.
Cost Audit Report Rules
In exercise of the powers conferred by sub-section (4) of section 233B, read with sub-section (1) of section 227 and clause (b) of sub-section (1) of section 642 of the Companies Act, 1956, Central Government has notified Cost Audit Report Rules from time to time. In supersession of the Cost Audit (Report) Rules, 1996, Cost Audit Report Rules, 2001 were notified vide G.S.R. 924(E) dated 27 th December 2001. These rules were further amended in the year 2006 vide The Cost Audit Report (Amendment) Rules, 2006.
Cost Audit Reports are required to be e-filed for every financial year within 180 days from the date of close of its financial year.
General Guidelines
FOR APPOINTMENT OF COST AUDITORS:
* Forms Required
Application for obtaining prior approval for appointment of Cost Auditors, in Form 23C as per proforma prescribed by the Companies (Central Governments) General Rules and Forms, 1956 has to be e-filed along with prescribed fees and other documents , for every financial year within 45 days from the date of commencement of its financial year. All the relevant information and guidelines in this regards is available in the MCA portal.
* Fees
Section 637A of the Companies Act, 1956 empowers the Central Government to accord approval, etc., subject to conditions and to prescribe fees on applications. Sub section 2 of Section 637A, inter alia, provides that every application, which may be made to the Central Government under any provisions of this Act, shall be accompanied by such fee as may be prescribed.
Vide Notification No. GSR 501 (E) dated 6.7.1999 read with Notification No. GSR 578 (E) dated 5.8.1999, the Ministry of Law, Justice & Company Affairs (Department of Company Affairs) has prescribed the application fee as under.
| A | B | C | |
| Company having an authorized capital of | Less than Rs.25 lakh | Rs.25 lakh or more but less than Rs.5 Crores | Rs.5 Crores or more |
| Amount of fees to be paid | Rs.500 | Rs.1000 | Rs.2000 |
* Check List
* Duly Filled in Form 23C
* Challan G.S.R. 7 for requisite fees
* Boards Resolution effecting appointment of Cost Auditor
* Certificate from Cost Auditor under section 224 of Companies Act.
FOR EXEMPTION FROM COST AUDIT ORDERS:
The exemption from Cost Audit on year-to-year basis is granted in situations arising out of temporary closure of the company and/or its manufacturing facilities, negligible production/activity, etc. Applications for seeking exemption are required to be made to the Central Government, along with fee, as prescribed above. The fee for each year for which approval for exemption is sought may be remitted through demand draft drawn in favour of Pay and Accounts Officer, Ministry of Corporate Affairs, payable at New Delhi. Following documents are required to be furnished along with application for exemption:
* Printed or attested true copy of complete Annual Report containing balance sheet and profit and loss account for the year for which exemption is being sought along with copies of the same pertaining to preceding two years.
* An affidavit containing full facts of capacity utilization, turnover and financial status of the company such as sick or not, duly signed by two Directors of the company and authenticated by a Notary Public.
* A brief note/status report on steps taken by the management for revival of the company and/or the said unit.
FOR WITHDRAWAL OF COST AUDIT ORDERS:
The withdrawal of Cost Audit is considered in case of permanent closure or sale or merger/amalgamation of production activities for the product under reference. Following documents are required to be furnished along with application for withdrawal:
* Printed or attested true copy of complete Annual Report containing balance sheet and profit and loss account for the year for which exemption is being sought along with copies of the same pertaining to preceding two years.
* An affidavit containing full facts of capacity utilization, turnover and financial status of the company such as sick or not, duly signed by two Directors of the company and authenticated by a Notary Public.
* A brief note / status report on steps taken by the management for revival of the company and/or the said unit.
* Documentary evidences substantiating closure/winding-up, sale, merger, amalgamation, etc. e.g. Courts order, surrender of licenses, sale of plant and machinery, power disconnection, manpower reduction, etc.
Frequently Asked Questions
* What is CARR?
Reply: In exercise of the powers conferred by section 642 (1) read with section 209 (1) (d) of the Companies Act, 1956, the Central Government is prescribes Cost Accounting Record Rules for the maintenance of cost records for various industries/products.
* What does it contain?
Reply: It contains the particulars relating to utilisation of material or labour or other item of cost as may be prescribed to include such details in the books of accounts. The broad categories under which the detailed cost records are required are materials, labour, utilities, overheads, depreciation, royalty/technical know-how, research & development expenses, incentives on exports, interest and other borrowing costs, captive consumption, pollution control, inter-company transaction etc. It also contains various proformae to enable the industry to calculate the cost of production and cost of sales effectively.
* To whom are they applicable?
Reply: They are applicable to the companies pertaining to any class of companies engaged in the production, processing, manufacturing or mining activities except the small scale industries having their total turnover less than rupees ten crores.
* What are the objectives for framing CARR?
Reply: The Cost Accounting Record Rules are sincere efforts to induce the companies to have control over their operations and costs with a view to achieve optimum economics in utilization of resources. These Rules inculcate a system so that such records are maintained under generally accepted cost accounting principles in a systematic way and on a uniform basis among the various companies of an industry. In the absence of any common prescribed Rules, the cost calculated by different companies may not be comparable due to usage of different methods, procedures and practices adopted by various accountants. The cost accounting record rules form the vary basis for compilation of cost audit reports.
* What is the criterion for selection of an industry/product?
Reply: Industries covered are selected considering the various factors such as, consumer products and services, products of mass consumption, items crucial for infrastructure development, products where substantial subsidies are granted by government, inputs required by various regulatory authorities on the basis of economic conditions, need to protect the government revenue, etc.
* How many CARRs have been notified so far?
Reply: Ministry of Corporate Affairs has so far prescribed 44 Cost Accounting Record Rules for the maintenance of cost records in various industries/products.
* Are these Rules modified keeping in pace with technological changes or socio economic needs?
Reply: Yes, the simplification and rationalisation of the existing Cost Accounting Record Rules is done due to the changes in the technological processes over a period of time and perceptional shift in accounting methods and techniques.
* How does it differ from the Financial Accounts?
Reply: Under financial accounts, every company is required to maintain the books of accounts under section 209 of the Companies Act, 1956 for all sums of money received and expended by the company, sales and purchases of goods and details of assets and liabilities. This is required to enable the determination of financial status and total profit or loss of the company for the particular period. In cost accounts, the cost records are maintained under section 209 (1) (d) of the Companies Act, 1956 to ascertain the amount incurred on materials, labour and all other heads of expenditure to ascertain the actual cost of the individual product produced or service rendered by the company.
* Whether extension of time for submission of Cost Audit Report permissible?
Reply: Under the extant rules, there is no provision for granting extension of time for submission of Cost Audit Report.
Cab Directory
| Bikaner House, Hutments No. IV, Shahjahan Road, New Delhi-110011 | |||
| Name | Designation | Telephone (Off.) | E-Mail Address |
| Shri B.B. Goyal | Adviser | 23386003 2338 6284 (Fax) |
[email protected] |
| Shri Ravindra Mathur | Director | 23386349 / 6685 | [email protected] |
| Shri G.G. Mitra | Dy. Director | 23386685 / 6349 | [email protected] |
| Shri R.C. Bhatt | Dy. Director | 23386349 | [email protected] |
| Shri Tarun Das | Dy. Director | 23386349 | [email protected] |
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