Summary: Cost audit under Section 148 of the Companies Act, 2013, mandates certain companies to maintain cost records and undergo a cost audit by a practicing cost accountant. This applies to companies in specified regulated (e.g., telecommunications, electricity) and non-regulated sectors (e.g., automobiles, cement), based on turnover criteria. Regulated sector companies must maintain cost records if their turnover exceeds ₹50 crores, while non-regulated sector companies must do so if turnover exceeds ₹100 crores. Exemptions apply to MSMEs, companies with over 75% export revenue, and those operating in Special Economic Zones (SEZs). Additionally, sectors like banking, insurance, NBFCs, and companies generating electricity for captive consumption are exempt due to existing regulatory oversight. The audit process involves various forms, including CRA-1 (cost records), CRA-2 (cost auditor appointment), CRA-3 (audit report), CRA-4 (filing report), and CRA-5 (auditor change). Compliance requires maintaining cost records, appointing a cost auditor within 180 days of the financial year, and submitting the audit report to the Central Government.
SECTION-148 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (COST RECORDS AND AUDIT) RULES, 2014
> Central Government may by order in respect of certain class or classes of companies, mandate a cost audit report to be obtained from a practicing cost accountant. (Section-148 of the companies act, 2013)
> It shall be conducted by a cost accountant in practice who shall be appointed by the Board on such remuneration as fixed by them.
> Cost auditor shall be appointed within a period of 180 days from the commencement of financial year in Form CRA – 4.
> Cost Audit Report shall be in Form CRA – 3.
> Every company under these rules including all units and branches thereof, shall, in respect of each of its financial year maintain cost records in Form CRA-1.
> The requirement for cost records under these rules shall not be applicable to a company which is classified as a MSME including as per the turnover criteria under Section 7(9) of the MSME Development Act, 2006.
> The requirement for cost audit under these rules shall not be applicable to a company covered under the Rules if revenue from exports (in foreign exchange) exceeds 75% of its total revenue OR if it is operating from a special economic zone (SEZ).
♦ FORMS RELATED TO COST AUDIT:
1. CRA-1: Cost Records
2. CRA-2: Notice of Appointment of Cost Auditor
3. CRA-3: Form of the Cost Audit Report
4. CRA-4: Filing of Cost Audit Report with the Central Government.
5. CRA-5: Form for Change in Cost Auditor
♦ APPLICABILITY OF COST RECORDS:
Cost records must be maintained by companies engaged in specified regulated and non-regulated sectors; if their turnover exceeds ₹35 crores in the preceding financial year.
- Regulated Sectors:
a) Telecommunications
b) Petroleum products
c) Electricity
d) Drugs and pharmaceuticals
e) Fertilizers
f) Sugar
g) Railways (goods/passenger)
- Non-Regulated Sectors:
a) Automobiles
b) Cement
c) Chemicals
d) Construction
e) Textiles
f) Glass
g) Metals (aluminium, copper, zinc, steel, etc.)
h) Paper
i) Mining and minerals
> REGULATED SECTORS:
- Overall turnover exceeds ₹50 crores, and the aggregate turnover of products/services under cost records is ₹25 crores or more.
> NON-REGULATED SECTORS:
- Overall turnover exceeds ₹100 crores, and the aggregate turnover of products/services under cost records is ₹35 crores or more.
> EXEMPTIONS FROM COST AUDIT
a) Companies in sectors like banking, insurance, and NBFCs are exempt from cost audit requirements because these sectors are regulated by their respective sectoral regulators, and their financial operations are already subject to stringent oversight and audit requirements.
b) The requirement for cost records under these rules shall not be applicable to a company which is classified as a MSME including as per the turnover criteria under Section 7(9) of the MSME Development Act, 2006.
c) Companies generating electricity for captive consumption are exempt from cost audit because their operations are typically small-scale and focused on internal use, making a detailed cost audit unnecessary.
d) The requirement for cost audit under these rules shall not be applicable to a company covered under the Rules if revenue from exports (in foreign exchange) exceeds 75% of its total revenue OR if it is operating from a special economic zone (SEZ).
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