ARTICLE ON COST AUDIT AND ITS APPLICABILITY AS PER COMPANIES ACT 2013 ============================================================================= FAQ ON THE APPLICABILITY OF COST AUDIT AS PER COMPANIES ACT 2013 Applicability of Cost Audit: All the prescribed companies which meet either the Net-worth or the Turnover requirement as specified in the Section 148 (2) of the Act, shall conduct Cost Audit. Threshold is laid down in rule 4 of the Companies Cost Audit and Records Rules 2014. Appointment of Cost Auditor:- Cost Audit shall be conducted by a cost accountant or a firm of cost accountants in practice who shall be appointed by the Board of Directors of the Company. Provided that no person appointed as an auditor of the Company under section 139 of the Act (statutory auditor) shall be appointed as a Cost Auditor Provided further that the auditor conducting the cost audit shall comply with the cost auditing standards. “Cost Accountant,” as defined under section 2(28) of the Companies Act, 2013, can be appointed as a cost auditor. An audit conducted under this section shall be in addition to the audit conducted under section 143 of the Act. The cost auditor shall submit the audit report to the Board in Form CRA-3. The cost auditor shall submit a duly signed report within a time frame of one hundred and eighty days (180 days) from the closure of the financial year i.e. up to September 30 to the Board. Company shall within thirty (30) days from the date of receipt of a copy of the cost audit report shall file the report in Form CRA-4 with the Central Government along with full information and explanation on every reservation or qualification contained therein. Considering the above we can state that for the FY 2019-20 the timeline for submission of the Cost Audit Report by the auditor to the Board would be September 30, 2020 and accordingly, company would be required to file Form CRA-4 on or before October 30, 2020 but now date has been extended due Covid 19 Pandemic upto 31/12/2020 However, amid COVID-19, representations have been received from various stakeholders for extension of last date for filing CRA-4. In view of the disruption caused due to pandemic, the Ministry of Corporate Affairs vide its circular December 01, 2020, has stated that if the cost audit report for the financial year 2019-20 is submitted by the cost auditor to the Board by December, 31 2020, then same would not be viewed as violation of the rule 6(5) of the Rule. Consequently, the company can file the cost audit report within 30 days from receipt of the report from cost auditor. However, in case the company has availed the extension of time for holding Annual General Meeting (“AGM”) for the FY 2019-20 the Form CRA-4 has to be filed as per timeline provided under the proviso to rule 6(6) of the rule i.e. company may file form CRA-4 within resultant extended period of filing financial statements under section 137 of the Companies Act, 2013. Circular dated December 01, 2020 for relaxation of additional fees and extension of last date for filing Cost Audit Report (Form CRA-4) for the Financial Year 2019-20 under the Act is hereunder: A- I Applicability of Cost Records
1 |
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 |
2 |
Drugs and pharmaceuticals; |
2901 to 2942; 3001 to 3006. |
3 |
Fertilisers; |
3102 to 3105. |
4 |
Sugar and industrial alcohol; |
1701; 1703; 2207. |
5 |
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 |
6 |
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 authorisation or license issued by the Department of Telecommunications, Government of India under Indian Telegraph Act, 1885 (13 of 1885); |
N/A |
(B) Non-regulated Sectors
Sl. No. |
Industry/ Sector/ Product/ Service |
*”Customs Tariff Act Heading” (wherever applicable) |
1. |
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. |
2. |
Turbo jets and turbo propellers; |
8411 |
3. |
Arms and ammunitions and Explosives; |
3601 to 3603; 9301 to 9306. |
4. |
Propellant powders; prepared explosives (other than propellant powders); safety fuses detonating fuses; percussion or detonating caps; igniters; electric detonators ; |
3601 to 3603 |
5. |
Radar apparatus, radio navigational aid apparatus and radio remote control apparatus; |
8526 |
6. |
Tanks and other armoured fighting vehicles, motorised, whether or not fitted with weapons and parts of such vehicles, that are funded (investment made in the company) to the extent of ninety per cent, or more by the Government or Government agencies; |
8710 |
7. |
Port services of stevedoring, pilotage, hauling, mooring, re-mooring, hooking, measuring, loading and unloading services rendered for a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports under the Major Port Trusts Act, 1963 (38 of 1963); |
Not applicable. |
8. |
Aeronautical services of air traffic management, aircraft operations, ground safety services, ground handling, cargo facilities and supplying fuel rendered at the airports and regulated by the Airports Economic Regulatory Authority under the Airports Economic Regulatory Authority of India Act, 2008 (27 of 2008); |
Not applicable. |
9. |
lron and Steel; |
7201 to 7229; 7301 to 7326 |
10. |
Roads and other infrastructure projects corresponding to para No. (1) (a) as specified in Schedule VI of the Companies Act, 2013 (18 of 2013); |
Not applicable. |
11. |
Rubber and allied products; including products regulated by the Rubber Board constituted under the Rubber Act, 1947 (XXIV of 1947); |
4001 to 4017 |
12. |
Coffee and tea; |
0901 to 0902 |
13. |
Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signalling equipment’s of all kind; |
8601 to 8608,8609 |
14. |
Cement; |
2523; 6811 to 6812 |
15. |
Ores and Mineral products; |
2502 to 2522; 2524 to 2526; 2528 to 2530; 2601 to 2617 |
16. |
Mineral fuels (other than Petroleum), mineral | oils etc.; |
2701 to 2708 |
17. |
Base metals; |
7401 to 7403; 7405 to 7413; 7419; 7501 to 7508; 7601 to 7614; 7801 to 7802; 7804; 7806; 7901 to 7905; 7907; 8001; 8003; 8007; 8101 to 8113. |
18. |
Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radioactive elements or isotopes, and Organic Chemicals; |
2801 to 2853; 2901 to 2942; 3801 to 3807; 3402 to 3403; 3809 to 3824. |
19. |
Jute and Jute Products; |
5303,5307,5310 |
20. |
Edible Oil; |
1507 to 1518 |
21. |
Construction Industry as per para No. (5) (a) as specified in Schedule VI of the Companies Act 2013 (18 of 2013); |
Not applicable. |
22. |
Health services, namely functioning as or running hospitals, diagnostic centres, clinical centres or test laboratories; |
Not applicable. |
23. |
Education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any business. |
Not applicable. |
24. |
Milk powder; |
0402 |
25. |
Insecticides; |
3808 |
26. |
Plastics and polymers; |
3901 to 3914; 3916 to 3921; 3925 |
27. |
Tyres and tubes; |
4011 to 4013 |
28. |
Pulp and Paper; |
4701 to 4704,4801 to 4802. |
29. |
Textiles; |
5004 to 5007; 5106 to 5113; 5205 to 5212; 5303;5307 5310; 5401 to 5408; 5501 to 5516 |
30. |
Glass; |
7003 to 7008; 7011; 7016 |
31. |
Other machinery and Mechanical Appliances; |
8402 to 8487 |
32. |
Electricals or electronic machinery; |
8501 to 8507; 8511 to 8512; 8514 to 8515; 8517; 8525 to 8536; 8538 to 8547. |
33. |
Production, import and supply or trading of following medical devices, namely:-
- Cardiac stents;
- Drug eluting stents;
- Catheters;
- Intra ocular lenses;
- Bone cements;
- Heart valves;
- Orthopaedic implants;
- Internal prosthetic replacements;
- Scalp vein set;
- Deep brain stimulator;
- Ventricular peripheral shud;
- Spinal implants;
- Automatic impalpable cardiac defibrillators,
- Pacemaker (temporary and permanent);
- Patent ductus arteriosus, atrial septal defect and ventricular septal defect closure device;
- Cardiac re-synchronize therapy ;
- Urethra spinicture devices;
- Sling male or female;
- Prostate occlusion device; and
- Urethral stents:
|
9018 to 9022″ |
A-II Rule 4 of the Companies (Cost Records and Audit) Rules, 2014 on Applicability of Cost Audit:- (1) Every company specified in item (A) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crore or more and the aggregate turnover of the individual product or products or services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or more. (2) Every company specified in item (B) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees thirty five crore or more. (3) The requirement for 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 seventy five per cent of its total revenue; or (ii) Which is operating from a special economic Zone.” (iii) which is engaged in generation of electricity for captive consumption through Captive Generating PIant. For this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the Electricity Rules, 2005″. SUGGESTIVE LIST OF DOCUMENTS/CERTIFICATES/ RECORDS REQUIRED FROM THE COMPANY FOR CONDUCT OF COST AUDIT:-
- A letter from the Company along with a set of completed cost statements for auditing the same.
- Approved/ signed copy of Annexures and date of Board Meeting (circular resolution) approving the same.
- Identification of cost centres/cost objects and cost drivers.
- Cost Accounting Policy
- Accounting and allocation and absorption of overheads.
- Accounting for depreciation/amortization
- Accounting for by-products/joint-products or services, scraps, wastage etc.
- Basis for Inventory Valuation
- Treatment of abnormal and non-recurring costs including classification of other non-cost items
- Certified copy of returns from branches not visited by the cost auditor
- A note on budgetary control system.
- Reasons for decline in profitability and indicative break-even point.
- Default on the payments due to the banks and institutions and penal interest levied.
- Note on the steps required to strengthen the business of company under the competitive environment.
- Export commitments versus actual export for the year – unexecuted export contracts.
- Pricing Policy of the company for domestic and export sales and their comparative profitability.
- Invitation to attend audit committee meeting and dates of audit committee meeting held during the year.
- Profile of the person heading the costing department.
- List of outside parties undertaking job-work for the Company and basis for fixing rates.
- Details of foreign collaboration, technical know-how and royalty payments.
- Details of the “other activities”, separately for manufacturing, services and others.
- A copy of annual report and a copy of division/ factory wise profit and loss account and balance sheet.
- Note on conformity with the Cost Auditing Standards, Cost Accounting Standards issued by the Institute of Cost Accountants of India.
- Description and flow chart of the processes of manufacture for production, utilities and service departments.
- Basis of calculation of installed capacity of the plant and machinery and working papers.
- Standards of input materials, product-wise.
- Standards of power, fuel and utilities.
- Cost center wise fixed asset register and depreciation.
- Analysis of Research and Development Expenses.
- Analysis of Quality Control Expenses.
- Analysis of Pollution Control Expenses.
- Abnormal events – details and costs.
- List of non-moving inventory and write off stock.
- Basis of inventory valuation – financial and cost records.- Reasons for variations.
- Note on Cost Accounting Policy of the Company Policy of Capitalisation of revenue expenses.
- Related party transactions details.
- Reconciliation of GST Returns.
Reasons for significant variations in key figures
|