Cost Audit Final
COST RECORDS AND COST AUDIT
Cost Audit is the independent examination of Cost records by the Cost Accountant in Practice.
In order to ascertain the true and accurate cost of products and services, it is necessary to ensure that these records are accurate and correct.
Let's understand the concept of Cost Records and Cost Audit under Companies Act, 2013 in detail.
Cost Records- as per rule 3 of The Companies (Cost Records and Audit) Rules, 2014
The Central Government may by Order direct the class of Companies mentioned in Rule 3 of The Companies (Cost Records and Audit) Rules, 2014 which are engaged in the production of goods or providing of services as defined in Table A (Regulated sector) or Table B (non-regulated sector) 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.
APPLICABILITY OF MAINTAINING COST RECORDS
The Company including foreign Company whether operating in regulated or non-regulated sectors having overall turnover of 35 crores or more in preceding Financial year shall maintain the Cost records of such products or services specified in the table A and B of Rule 3 of The Companies (Cost Records and Audit) Rules, 2014.
Example: “A” Company registered in USA has a place of Business in India deals in steel products and the overall turnover from all its products and services of the Company is 40 crore during the preceding financial year i.e. 2019-2020.
The Company “A” is required to maintain the Cost records for the current Financial Year whether it is foreign or domestic because the overall turnover from all of its products or services during preceding Financial year i.e. 2019-20 is 40 crore.
- Cost Records if applicable shall be maintained by Company in Form CRA-1.
CONCENPT OF COST AUDIT
Section 148 read with rules “The Companies (Cost Records and Audit) Rules, 2014” regulates the concept of Cost Audit.
OBJECTIVES OF COST AUDIT
- To detect errors and fraud.
- Ensuring that the prescribed procedures of cost accounting records rules are duly adhered to.
- Ensuring optimum utilization of human, physical and financial resources of the enterprise.
- Facilitating the fixation of prices of goods and services.
- Providing assistance to the management by bringing out the deficiencies to its notice and thereby avoid inefficient use of resources like capital, labour, raw material, etc.
APPLICABILITY OF COST AUDIT
Rule 4 of The Companies (Cost Records and Audit) Rules, 2014-
- For regulated sectors like Telecommunication, Electricity, Petroleum and Gas, Drugs and Pharma, Fertilizers and Sugar, Cost audit requirement has been made subject to a turnover based threshold of 50 crores for all products and services and 25 crores for individual product or services during the immediately preceding financial year.
- For Non-regulated sector the threshold is 100 crores and 35 crores respectively.
Therefore, for applicability of the Cost audit it is mandatory that Company should fall either of the Table A or B as prescribed in Rule 3 of “The Companies (Cost Records and Audit) Rules, 2014.”
Example: “XYZ” Company deals in the product of cardiac stents in addition to other medical equipment. The overall turnover of the Company is 200 crore during the immediately preceding financial year i.e. 2019-20 while the turnover related to cardiac stents is 25 crore. Advise the Company on the applicability of Cost Audit.
Cardiac stents belongs to non-regulated sector which is mentioned in serial number 33 of table B of Rule 3 of “The Companies (Cost Records and Audit) Rules, 2014”.The threshold limit for the non-regulated sector is 100 crores for all products or services and 35 crores for individual products & services.
Therefore, XYZ Company is not required to conduct cost audit because the turnover related to cardiac stent is 25 crore.
EXEMPTION FROM COST AUDIT
The requirement of Cost Audit shall not apply to a company covered by Rule 3 in the following circumstances:-
- Cost Accountant in practice or Firm of Cost Accountant can be appointed as Cost Auditor.
- The Auditor appointed under section 139 shall not be appointed as the Cost Auditor.
- The Company shall give all assistance and facilities to the Cost Auditor.
- The Cost audit shall be in addition to the audit conducted under section 143.
Rule 6 of “The Companies (Cost Records and Audit) Rules, 2014”-
APPOINTMENT OF COST AUDITOR
CASUAL VACANCY OF COST AUDITOR
Any casual vacancy shall be filled by the Board of Director within 30 days of occurrence of such vacancy and shall inform the Central Government in Form CRA-2 within 30 days of such appointment.
COST AUDIT REPORT
- Cost auditor will complete the Cost Audit within 180 days from the end of the Financial year and shall submit his cost audit report along with his or its reservations or qualifications or observations or suggestions, if any, to Company in Form CRA-3
- Within 30 days of receiving cost audit report, the Company shall submit to the Central Government such report in Form CRA-4 containing full information, explanation on every reservation or qualification made in Cost Audit report.
- If, after considering the cost audit report and the information and explanation furnished by the company, the Central Government is of the opinion that any further information or explanation is necessary, it may call for such further information and explanation and the company shall furnish the same within such time as may be specified by that Government.
DUTY OF COST AUDITOR TO REPORT FRAUD
If an auditor of a company contravenes such provisions, 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 willfully 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.