Insight on Companies Act, 2013 – Maintenance of Cost Records & Cost Audit Requirement

September 23, 2019

Introduction- Section 148 of the Companies Act, 2013 (“the Act”) read with Companies (Cost Records and Audit) Rules, 2014 and Companies (Cost Records and Audit) Amendment Rules, 2014 (“Rules”) deals with provisions relating to maintenance of Cost Records and Cost Audit requirement. The Central Government by order has specified certain companies engaged in production of certain goods or services to which these rules are applicable. Ministry of Corporate Affairs has issued Companies (Cost Records and Audit) Rules, 2014 (“Rules”) on 30th June, 2014, wherein few rules were substituted by Companies (Cost Records and Audit) Amendment Rules, 2014 (“Amendment Rules”) dated 31st December, 2014.
 I) Applicability of Cost Records (Rule 3 of Amendment Rules)- Every company including foreign company which is engaged in the production of goods or providing services as specified in Table ‘A’ (Regulated Sectors) & Table ‘B’ (Non-regulated Sectors) having an overall turnover from all its products and services of Rs. 35.00 crore or more during the immediately preceding financial year have to maintain the cost records for such products or services in their books of accounts in Form CRA – 1. Maintenance of cost records and cost audit for serial number 12 and serial number 24 to 32 of Table ‘B’ is applicable in respect of each of its financial year commending on or after 1stday of April, 2015. Please click here for Amendment Rules. However, the applicability of maintenance of Cost Records is not applicable to the following: Foreign companies having only liaison offices which deals with serial number 33 – relating to medical devices. Companies which are classified as Micro enterprise or a small enterprise including as per the turnover criteria under sub section 9 of section 7 of MSMED Act, 2006.

II) Application of Cost Audit (Rule 4 of Amendment Rules)- Every company will have to get its cost records audited in accordance with these rules, if:

Particulars Table A (Regulatory) Table B (Non Regulatory)
Overall annual turnover from all its products and services during the immediately preceding financial year[and] Rs. 50.00 crore or more Rs. 100.00 crore or more
Aggregate turnover of the individual product or products or services or services for which cost records are required to be maintained Rs. 25.00 crore or more Rs. 35.00 cores or more

Non applicability of Cost audit: Requirement of cost audit is not applicable to a company which is covered in Rule 3 of Amendment Rules and

  • Whose revenue from exports in foreign exchange exceeds 75% of its total Revenue.
  • Which is operating from Special Economic Zone (SEZ).

III) Appointment of Cost Auditor and other requirements-

  1. Audit Committee has to recommend the appointment and remuneration of cost auditor to the Board for such Companies, where constitution of audit committee is applicable and remuneration of cost auditor to be ratified subsequently by the shareholders.
  2. Appointment of cost auditor: shall be done within 180 days of the commencement of every financial year and file Form CRA-2 with the Central Government within a period of 30 days of the Board meeting [or] within a period of 180 days of the commencement of the financial year, whichever is earlier. However, for the financial year ended 31st March, 2014, the Ministry of Corporate Affairs vide its General Circular no. 2/2015 dated 11th February, 2015 extended the last date for filing of notice of appointment of cost auditor extendedupto31st March, 2015.
  3. Term of office: Cost auditor’s tenure shall continue till the expiry of 180 days from theclosure of the financial year or till he submits the cost audit report.
  4. Submission of cost audit report: Cost auditor shall submit cost audit report in Form CRA-3and shall forward the same to the Board of Directors within a period of 180 days from the closure of the financial year for their consideration.
  5. Filing of cost audit report: Company has to file cost audit report in Form CRA-4 with the Central Government within 30 days from the receipt of a copy of cost audit report.
  6. Casual Vacancy:Any casual vacancyshall be filled by the Board of Directors within 30 days of such vacancy and the company has to file Form CRA-2 within 30 days of such appointment.

IV) Major highlights/amendments of Amendment Rules-

  • Companies (Cost Records and Audit) Rules, 2014 has categorizedcompanies to which maintenance of cost records is applicable into four categories i.e., A, B, C & D.But Companies (Cost Records and Audit) Amendment Rules, 2014 has simplified it by categorizing companies into Table A (Regulated Sectors) and Table B (Non-regulated Sectors).
  • Companies (Cost Records and Audit) Amendment Rules, 2014lists give an exhaustive list of industry/sectors/products/services alongwith theirrespective CETA headings those who need to prepare cost recordswhereinseveral business brought under the ambit of cost records and audit.
  • Lower threshold limits for Cost Audit and uniform threshold limits for maintaining cost records
  • By virtue of this Companies (Cost Records and Audit) Amendment Rules, 2014, a sub-rule with regard to casual vacancy occurred in office of cost auditor is inserted.
  • Though cost maintenance of Cost Accounting Records are mandatory for specified industries, requirement of Compliance Certificate has been dispensed with.
  • Replacement of formats of Forms CRA-1(Cost Records) and CRA-3 (Cost audit report) with new formats.
  • Deferred date of implementation for new business line which has mentioned in the amended rules.

Conclusion -Companies (Cost Audit) Amendment Rules are welcome approach. Cost audit benefits to identify the wasteful expenditure enabling the companies to augement cost competitiveness and profitability. Thus, cost audit benefits shareholders, consumers and society at large.

Hi :) My name is Muskan Agarwal. I am very headstrong and go getter in whatever i do. I work as a paralegal in the team and try to bring value in my work.