Cost Audit and Cost Records

COST RECORD: The definition of the word ‘cost records’ has been provided under rule 2 (e) of the Companies (Cost Records and Audit) Rules, 2014 which means books of account relating to the utilization of materials, labour and other items of cost as applicable to the production of the goods or provision of services as provided in section 148 of the Act and the Companies (Cost Records and Audit) Rules.

COMPANIES REQUIRED TO MAINTAIN COST RECORDS:

The class of companies, including foreign companies, engaged in the production of the goods or providing services, specified in the Annexure A, having an overall turnover from all its products and services of rupees thirty-five crore or more during the immediately preceding financial year, shall include cost records for such products or services in their books of account. 

COMPANIES REQUIRED TO DO COST AUDIT:

Every company specified in (A) regulated Sector as given under Annexure A, shall get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crore or more and the aggregate turnover of the individual product or products or services for which cost records are required to be maintain is rupees twenty five crore or more.

Every company specified in (B) Non-regulated Sector as given under Annexure A shall get its cost records audited if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintain is rupees thirty five crore or more.

The requirement of Cost Audit not apply to a company which is required to maintain cost records and-

1. whose revenue from exports, in foreign exchange, exceeds seventy five (75) per cent of its total revenue; or

2. Which is operating from a special economic Zone.

3. which is engaged in generation of electricity for captive consumption through Captive Generating Plant.

COST AUDITOR: Only a Cost Accountant can be appointed as Cost Auditor for conducting cost audit. Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act.

Provided that no person appointed statutory auditor of the company shall be appointed for conducting the audit of cost records.

A Cost Auditor has to be appointed within one hundred and eighty days from the starting of the financial year by every company on whom these provisions are applicable.

For the appointment of Cost Auditor the company is required to file Form MGT-14 and Form CRA-2 with the Registrar of Companies.

COST AUDIT REPORT: The report on the audit of cost records shall be submitted by the cost accountant to the Board of Directors of the company. A company shall within thirty days from the date of receipt of a copy of the cost audit report prepared furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein in E-form CRA-4 to department.

 PENALTY: If any of the provisions of 148 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 fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees.
• If an auditor of a company contravenes any of the provisions of cost audit, 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 or four times the remuneration of the auditor, whichever is less. Provided that if an auditor has contravened such provisions knowingly or wilfully 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 fifty thousand rupees but which may extend to twenty-five lakh rupees or eight times the remuneration of the auditor, whichever is less.
• 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.
• Provided that in case of criminal liability of an audit firm, in respect of liability other than fine, the concerned partner or partners, who acted in a fraudulent manner or abetted or, as the case may be, colluded in any fraud shall only be liable.

DIFFERENCE BETWEEN COST AUDIT AND FINANCIAL AUDIT:

The author is assistant manager at Filingadda and  can be reached at [email protected].