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Section 148 of the Companies act 2013 provides the provision of Cost Audit and The Central Government issued Companies (Cost Records and Audit) Rules, 2014 on June 30, 2014.
Government needs authentic and reliable data of cost for various purposes like price fixation of controlled commodities. The information is also useful in various decisions like fixation of duty drawback, export incentives; amount of excise duty the product can bear, deciding whether special incentives are required to a particular industry etc.
There are certain and rules have been provided for regulation and working of Cos Audit.
Subsequently, various amendments are carried out in the above rules as enumerated below from time to time till date:
The Companies (Cost Records and Audit) Amendment Rules, 2014 dated 31/12/2014
This amendment brought the changes as pointed below:
i. Definition of Central excise tariff heading given
ii. Rule 3 – Application of cost records substituted – Table A and Table B added
iii. Rule 4 – Applicability of cost audit substituted – Table A and Table referred
iv. Proviso to Rule 5(1) inserted.
v. Rule 6(3A) inserted – to give the provision to fill the casual vacancy within 30 days.
vi. Rule 7 (Rules not to apply in certain cases) omitted
vii. Form CRA-1 and CRA 3 substituted
2. The Companies (cost records and audit) (Amendment) Rules, 2015 dated 12/06/2015
This amendment brought the changes as pointed below:
i. Amendment in CRA-2 & CRA-4
3. The Companies (cost records and audit) (Amendment) Rules, 2015 dated 14/12/2015
This amendment brought the changes as pointed below:
i. Rule 13 of The Companies (Cost Records and Audit) Rules, 2014 was substituted with new clause
4. The Companies (cost records and audit) (Amendment) Rules, 2016 dated 14.07.2016
This amendment brought the changes as pointed below:
i. Definition of cost audit Report is substituted with the new one
ii. Table A and Table B given under Rule 3 are substituted.
iii. Rule 4(3)(iii) is inserted to include captive generation plant.
iv. proviso to Rule 6 (1) written consent of the cost auditor is required to be obtained.
v. Rule 6(1A) inserted to include certificate from cost auditor in terms of section 141
vi. Proviso to Rule 6 (3) inserted for removal of cost auditor before expiry of term.
vii. Rule 6(3B) inserted to include approval of Board of directors for the cost statements and annexures of cost audit report before signed on behalf of board.
viii. Rule 6(5) substituted for providing that cost audit report shall be submitted to board within 180 days from closure of FY.
ix. Rule 6(6) substituted to provide filing of cost audit report in form CRA-4-XBRL within 30 days of receipt
Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Rules, 2014 (by considering various amendments as mentioned above) are applicable and governs the maintenance of cost accounting records and cost audit
Every company including a foreign company engaged in the production of goods or providing services specified in the Tables -A & B of rule 3, having an overall turnover from all its products and services of Rs 35 crores or more during the immediately preceding financial year shall include cost records for such products and services in their books of accounts maintained.
The Rule 3 has classified sectors under Regulated and Non-Regulated sectors.
The sectors covered under Table A are under the Regulated Sector and sectors covered under Table B are under the Non-Regulated Sector.
Every company engaged in the production of the goods or providing services, specified in Tables (Table A – Regulated sectors and Table B – Non-regulated Sectors), 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.
Provided that nothing contained above shall apply to a company which is classified as micro enterprise or a small enterprise including as per the turnover criteria under sub-section (9) of section 7 of the Micro, Small and Medium Enterprises Act, 2006.
Rule 4states that cost audit would be applicable to a company if the classification of company falls under Industry / Sector / Product / Service provided in Table A or Table B and:
For any company to fall under the requirement of Cost Audit following two tests shall apply:
a. Coverage under Table – A and / or Table – B.
Company’s product / services shall fall under one or more categories given under Table A and / or Table B. AND the respective Central Excise Tariff Act (CETA) headings (wherever applicable).
(i) If the products or services of the company falls under Table A – Regulated sectors:
Overall annual turnover from all products and /or services is Rs. 50 crore or more AND aggregate turnover from individual product or services for which cost records are required to be maintained is Rs. 25 crore or more, during the immediately preceding financial year;
(ii) If the products or services of the company falls under Table B – Non-regulated Sectors:Overall annual turnover from all products and / or services is Rs. 100 crore or more AND aggregate turnover from individual product or services for which cost records are required to be maintained is Rs. 35 crore or more, during the immediately preceding financial year.
Exemption from applicability of Cost audit(Rule 7):
The requirement of Cost Audit under these rules shall not apply to a company which is covered in Rule 3, and –
i. whose revenue from exports, in foreign exchange, exceeds 75% of its total revenue; or
ii. which is operating from a special economic zone.
MAINTAINANCE OF RECORDS
The requirement to maintain cost records in Form CRA-1 have been postponed to Financial Year 2015-16 for the following companies in some non-regulated sectors, namely; Coffee and Tea, Milk Powder and Electricals and electronic machinery.
Every company, which comes under the Rules, including all units and branches, shall, in each financial year from 1-4-2014, maintain cost records in Form CRA-1.
In the case of company covered in serial number 12 (coffee and tea) and serial numbers 24 to 32 of item B of Rule 3, the requirement of Rule 5 shall apply in respect of each of its financial year on or after 2014-2015.
The above cost records shall be maintained on regular basis so as to help calculation of per unit cost of production or cost of operations, cost of sales and margin for each product and activities for every financial year on monthly, quarterly, half-yearly or annual basis.
The cost records shall be maintained in such manner as to enable the company to have control over various operations and costs to achieve optimum economies in utilization.
Pursuant to the rules 3 and 4, it is clear which are the companies to whom Cost Audit shall be applicable in every financial year and therefore there is no need for the Central Government to issue order directing Cost Audit.
Cost Audit Report-Rule 6(4) as amended on 31-12-2014
The Cost Auditor shall submit the Cost Audit Report along with his or its reservations or qualifications, if any, in Form CRA-3 to the Board of Directors of the company within a period of 180 days from the closure of the financial year.
The Board of Directors shall consider and examine such report, particularly any reservation or qualification contained therein.
The cost statements, including other statements to be annexed to the cost audit report, shall be approved by the Board of Directors before they are signed on behalf of the Board by any of the director authorised by the Board, for submission to the cost auditor to report thereon";
Copy of the Cost Audit Report to be furnished to the Central Government:
Every Company shall forward a copy of Audit Report to the Registrar of Companies within 30 days of receipt of the Audit Report along with the full information and explanation on every qualification or reservation, if any, in Form CRA-4 with fees specified in Companies (Registration Offices and Fees) Rules, 2014.
Duty of the Cost Auditor to report on commission of offence found during the Audit-Rule 6(7)
In terms of Section 143(12) of the Act, if the Cost Auditor, in the course of his duties as Cost Auditor, has reason to believe that an offence involving fraud has been or is being committed against the Company by its officers or employees, he shall immediately report the manner to the Central Government.
Content of the Certificate of cost Auditor:
The individual or the firm, as the case may be, is eligible for appointment and is not disqualified for appointment under the Act, the Cost and Works Accountants Act, 1959 (23 of 1959) and the rules or regulations made thereunder.
The individual or the firm, as the case may be, satisfies the criteria provided in section 141 of the Act, so far as may be applicable.
The proposed appointment is within the limits laid down by or under the authority of the Act;
The list of proceedings against the cost auditor or audit firm or any partner of the audit firm pending with respect to professional matters of conduct, as disclosed in the certificate, is true and correct.
APPOINTMENT OF COST AUDITOR-
Who can be appointing as cost auditor:
A cost Accountant in practice or a firm of cost accountants can be appointed as a cost auditor.
A cost accountant holding certificate of practiced on part time basis is not entitled to conduct cost audit. Thus, only a cost accountant in whole-time practice can conduct cost audit.
Who can’t appoint as cost auditor:
Statutory Auditor appointed under Section 139 of the Act can’t be appointed as Cost Auditor of the Company.
Process for appointment of Cost Auditor:
Consent of Auditor: Before appointment is made, the written consent of the cost auditor to such appointment, and a certificate from him or it, as provided in sub-rule (1A), shall be obtained.
If Company has Audit Committee: Appointment and remuneration will be recommended by audit committee and approved by Board.
If Company doesn’t have Audit Committee: If there is not audit committee, appointment and remuneration fixation will be done by Board. Later, this remuneration shall be ratified by Shareholders.
Information for appointment Cost Auditor:
a. Information to Cost Auditor: Every Company which requires appointment of Cost Auditor shall inform the Cost auditor of his appointment within 30 days of Board Meeting in which resolution for appointment has passed.
b. Information to ROC: Company will file form CRA-2 with ROC: Within 30 days of passing of Resolution in Board Meeting, OR Within 180 days of the commencement of financial year. Whichever is earlier.
Removal of Cost Auditor:
The cost auditor appointed may be removed from his office before the expiry of his term, through a board resolution after giving a reasonable opportunity of being heard to the Cost Auditor and recording the reasons for such removal in writing.
Appointment of Cost Auditor in case of Casual Vacancy:
Any casual vacancy in the office of a cost auditor whether due to resignation, death or removal, shall be filed by the Board of Directors within 30 days of such Vacancy.
Company will file form CRA-2 with ROC within said 30 days. Period by which appointment to be made-Rule 6(1): The concerned companies shall appoint the Cost Auditor within 180 days of the commencement of every financial year.
Limit of number of Cost Auditor:
Limit of number of audit per person, as are applicable to Statutory Auditors are applicable to Cost Auditors.
Qualifications, Rights, Duties and obligations of Cost Auditor:
The qualification, disqualification, rights, duties and obligations of Cost Auditor/firm of Cost Auditor are same as applicable to Statutory Auditors.
Note: The auditor conducting the cost audit shall comply with the cost auditing standards.
Punishment on contravention of this Section:
To the company:
The company shall be punishable with a fine which shall not be less than Rs. 250,00.00 but which may extend to Rs. 5,00,000.00. Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 1 year or fine which shall not be less than Rs. 10,000.00 but which may extend to Rs. 1,00,000.00 or with both.
To the auditor
He shall be punishable with a fine which shall not be less than Rs. 25000.00 but which may extend to Rs. 5,00,000.00. However, if the auditor has contravened such provisions 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 Rs. 1,00,000.00 but which may extend to Rs. 25,00,000.00.
In case the criminal liability of an audit firm, the liability other than fine shall devolve only on the concerned partner who acted in fraudulent manner.
(A) Regulated Sectors
Central Excise Tariff Act(CETA) Heading (wherever applicable)
Telecommunication services made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997); including activities that requires authorization or license issued by the Department of Telecommunications, Government of India under Indian Telegraph Act, 1885 (13 of 1885);
Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003);
Generation- 2716; Other Activity-Not Applicable
Petroleum products; including activities regulated by the Petroleum and Natural Gas Regulatory Board under the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006)
2709 to 2715;
Other Activity-Not Applicable
Drugs and pharmaceuticals
2901 to 2942; 3001 to 3006
3102 to 3105
Sugar and industrial alcohol
1701; 1703; 2207
(B) Non-Regulated Sectors
Industry/ Sector/ Product/ Service
Central Excise Tariff Act Heading (wherever applicable)
Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding any ancillary item or items;
Explanation. – For the purposes of this sub-clause, any company which is engaged in any item or items supplied exclusively for use under this clause, shall be deemed to be covered under these rules
8401; 8801 to 8805; 8901 to 8908
Turbo jets and turbo propellers;
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