MINISTRY OF LAW, JUSTICE AND COMPANY AFFAIRS
(DEPARTMENT OF COMPANY AFFAIRS)
New Delhi, the 27th December, 2001
G.S.R. 924(E).- 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 (1 of 1956), and in supersession of the Cost Audit (Report) Rules, 1996, except as respect things done or omitted to be done, before such supersession, the Central Government hereby makes the following rules, namely :-
1. Short title and commencement-
(1) These rules may be called the Cost Audit Report Rules, 2001.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. Definitions .- In these rules, unless the context otherwise requires,-
(a) “Act” means the Companies Act, 1956 (1 of 1956);
(b) “Cost Auditor” means an auditor directed to conduct an audit under sub-section (1) of section 233B of the Act;
(c) “Form” means the Form of the Cost Audit Report and includes auditor’s observations and suggestions, Annexure and Proforma to the Cost Audit Report;
(d) “Report” means Cost Audit Report duly audited and signed by the Cost Auditor in the prescribed form of Cost Audit Report;
(e) “Product under reference” means the product or activity to which the Report relates;
(f) All other words and expressions used in these rules but not defined, and defined in the Act and rules made under clause (d) of sub-section (1) of section 209 of the Act shall have the same meanings as assigned to them in the Act or rules, as the case may be.
3. Application .- These rules shall apply to every company in respect of which an audit of the cost accounting records has been ordered by the Central Government under sub-section (1) of section 233B of the Act. The Cost Audit Report submitted on or after 1st October, 2002, irrespective of the financial year of the company to which it relates, shall be in the form prescribed under these rules.
4. Form of the Report .- (1) Every Cost Auditor, who conducts an audit of the cost accounting records of the company shall submit the report (a hard copy and a soft copy) along with auditor’s observations and suggestions, Annexure and Proforma to the Central Government in the prescribed form and at the same time forward a copy of the report to the company.
(2) Every Cost Auditor, who submits a report under sub-rule (1), shall also give clarifications, if any, required by the Central Government on the Cost Audit Report submitted by him, within thirty days of the receipt of the communication addressed to him calling for such clarifications.
5. Time limit for submission of Report .- The Cost Auditor shall forward his report referred to in sub-rule (1) of rule 4 to the Central Government and to the concerned company within one hundred and eighty days from the close of the company’s financial year to which the report relates.
6. Cost Auditor to be furnished with the cost accounting records etc. .- Without prejudice to the powers and duties the Cost Auditor shall have under sub-section (4) of section 233B of the Act, the company and every officer thereof, including the persons referred to in sub-section (6) of section 209 of the Act, shall make available to the Cost Auditor within one hundred and thirty five days from the close of the financial year of the company, such cost accounting records, cost statements, other books and documents, Annexure and Proforma to the Report, duly completed, as would be required for conducting the cost audit, and shall render necessary assistance to the Cost Auditor so as to enable him to complete the cost audit and submit his report within the time limit specified in rule 5.
7. Authentication of Annexure to the Cost Audit Report .- The Annexure and Proforma prescribed with the Cost Audit Report shall be approved by the Board of Directors before submitting the same to the Central Government by the Cost Auditor. The Annexure and Proforma, duly audited by the Cost Auditor, shall also be signed by the Company Secretary and at least one Director on behalf of the company. In the absence of Company Secretary in the company, the same shall be signed by at least two Directors.
8. Penalties .- (1) If default is made by the Cost Auditor in complying with the provisions of rule 4 or rule 5, he shall be punishable with fine, which may extend to five thousand rupees.
(2) If the company contravenes the provisions of rule 6 or rule 7, the company and every officer thereof who is in default, including the persons referred to in sub-rule (6) of section 209 of the Act, shall, subject to the provisions of section 233 B of the Act, be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first day during which such contravention continues.
9. Saving of action taken or that may be taken for contravention of Cost Audit (Report) Rules, 1996 – It is hereby clarified that the supersession of the Cost Audit (Report) Rules, 1996, shall not in any way affect –
(i) any right, obligation or liability acquired, accrued or incurred thereunder ;
(ii) any penalty, forfeiture or punishment incurred in respect of any contravention committed thereunder ;
(iii) any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and; any such investigation, legal proceeding or remedy may be instituted, continued or enforced and any such penalty, forfeiture or punishment may be imposed as if those rules had not been superseded.
FORM OF THE COST AUDIT REPORT
[See rule 2(c) and rule 4]
I/We, …………………………… having been appointed as Cost Auditor(s) under Section 233B of the Companies Act, 1956 (1 of 1956) of …………………………… (mention name of the company) having its registered office at ……………………………(mention registered office address of the company) (hereinafter referred to as the company), have examined the books of account prescribed under clause (d) of sub-section (1) of section 209 of the said Act, and other relevant records in respect of the unit ……………………………. (mention name and location of the unit) for the period/year ……………………. (mention the financial year) relating to …………… (mention name of the product or activity) maintained by the company and report, in addition to my/our comments in para 3 relating to auditor’s observations and suggestions, that –
1. (i) I/We have/have not obtained all the information and explanations, which to the best of my/ our knowledge and belief were necessary for the purpose of this audit;
(ii) proper cost accounting records, as prescribed under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956, have/have not been kept by the company;
(iii) proper returns adequate for the purpose of my/our Cost Audit have/have not been received from the branches not visited by me/us;
(iv) the said books and records give/do not give the information required by the Companies Act, 1956 in the manner so required;
(v) the cost statements in respect of product or activity under reference as specified in the Annexures/Proformae of Schedules I, Schedule II or Schedule III of the concerned Cost Accounting Records (**………………………) Rules duly audited by me/us are kept in the company.
2. In my/our opinion, the company’s cost accounting records have/have not been properly kept so as to give a true and fair view of the cost of production, cost of sales and margin of the product under reference as prescribed under the rules.
3. Based on my/our examination of the records of the company subject to aforesaid qualifications, if any, I/We give my/our observations and suggestions on the following –
(a) the adequacy or otherwise of the cost accounting system including inventory valuation in vogue in the company and suggestions for the improvement thereof. The Cost auditor shall also indicate the pesistent deficiencies in the system, pointed out in earlier reports but not rectified;
(b) the adequacy or otherwise of the budgetary control system, if any, in vogue in the company;
(c) matters which appear to him to be clearly wrong in principle or apparently unjustifiable;
(d) cases, where price charged for related party transactions as defined in the respective Cost Accounting Records Rules is different from normal price, impact of such lower/higher price on margin of the product under reference shall be specified;
(e) areas where the company is incurring losses or where there is considerable decline in profitability, the cost auditor should comment on the reasons thereof including indicative break-even point. The cost auditor shall also comment on the default, if any on the payments due to the Government, financial institutions and banks, penal interest levied thereon and its impact on the cost of sales and profitability;
(f) steps required to strengthen the company under the competitive environment especially with regard to need for protection from cheaper imports, if any;
(g) export commitments of the company via-à-vis actual exports for the year under review. Also comment on comparative profitability and pricing policy of the company for domestic and export sales. Give impact of exports benefits/ incentives offered by the Government on export profitability;
(h) the scope and performance of internal audit of cost records, if any, and comment on its adequacy or otherwise.
4. The Cost Auditor shall suggest measures for making further improvements in the performance in respect of cost control and cost reduction.
5. The Cost Auditor may also give his other observations and suggestions, if any, relevant to the cost audit.
Dated : this —- date of ——– 200–
at —————— (mention name of place of signing this report).
SIGNATURE & SEAL OF THE COST AUDITOR(S)
(1) Delete words not applicable.
(2) **Specify the title of the concerned Cost Accounting Records Rules made under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956 which are applicable to the product or activity of the company.
(3) I as a result of the examination of the books of account, the Cost Auditor desires to point out any material deficiency or give a qualified report, he shall indicate the same against the relevant para (i) to (vi) only in the prescribed form of the Cost Audit Report giving details of discrepancies he has come across.
(4) The report, suggestions, observations and conclusions given by the Cost Auditor under this paragraph shall be based on verified data, reference to which shall be made here and shall, wherever practicable, be included after the company has been afforded an opportunity to comment on them.
ANNEXURE TO THE COST AUDIT REPORT
[See rule 2(c) and rule 4]
(1) (a) Name and address of the registered office of the company whose accounts are audited.
(b) Name and address of the place where the cost accounting records are maintained viz. registered office, head office or factory.
(2) Name of the product and location of the unit to which the Annexure pertains.
(3) The Company’s financial year to which the Cost Audit Report relates.
(4) Date of first commencement of commercial production of the product under reference.
(5) Location of other sites manufacturing or producing or processing or mining the product or carrying out the activity under reference.
(6) Name and address of the Cost Auditor.
(7) Membership number of the Cost Accountant. In case of firm of Cost Accountants, name and membership number of all the partners.
(8) Reference number and date of Government Order under which the Audit is conducted.
(9) Reference number and date of the Government letter approving the appointment of the Cost Auditor.
(10) Date of Board of Directors’ meeting wherein the Annexure and Proforma to the cost audit report were approved.
(11) The number of Audit Committee meetings held by the company, and attended by the Cost Auditor during the year under reference.
(12) Name, qualification and designation of the officer heading the cost accounting section or department of the company.
(13) In case of loan license/ job work arrangement by the company, mention the name of the third party and location of the factory, where the product has been produced/manufactured.
(14) If there is any foreign technical collaboration for the product under reference, the following details shall be given:
(a) name and address of the foreign collaborators;
(b) main terms of agreement ;
(c) amount of royalty, lump sum payment, technical aid fee payable and the basis of calculating the same;
(d) whether the technical collaborator has contributed to the share capital. If so, the paid up share capital so held.
(15) If the company is engaged in other activities besides the manufacture of the product under reference, the following details in respect of each such product or activity shall be given:
(a) list of the products or activities;
(b) list of the products or activities for which Cost Accounting Records Rules have been prescribed under section 209(1)(d) of the Act.;
(c) whether Cost Audit Order has been issued by the government in respect of any of the products or activities. If so, number and date of the order.
(16) A printed copy of the Annual Report, containing audited Profit and Loss Account, Balance Sheet and Auditor’s Report in respect of the company’s financial year for which the report is rendered, shall be enclosed with the Cost Audit Report.
2. COST ACCOUNTING SYSTEM:
(1) Briefly describe the cost accounting system existing in the company, keeping in view the requirements of the Cost Accounting Records Rules applicable to the class of companies manufacturing the product under reference and also its adequacy or otherwise to determine correctly the cost of production, cost of sales, sales realisation and margin of the product under reference.
(2) Briefly specify the changes, if any, made in the costing system; basis of inventory valuation; method of overhead allocation; apportionment to cost centers/departments and final absorption to the product under reference etc., during the current financial year as compared to the previous financial year.
3. PROCESS OF MANUFACTURE:
A brief note regarding the process of manufacture along with flow chart covering production, utility and service department of the product.