Cost Audit Legal Provisions

 Section 209 (1) (d) deals with maintenance of cost accounting records compulsorily by companies engaged in specified industries.

Maintenance of Cost Records

Following records should be maintained under Cost accounting Records Rules: 1. Records of raw materials, components, stores and spare parts. 2. Records for labour. 3. Records for overheads. 4. Records for utilities/ services. 5. Records of Fixed Assets. 6. Records for packing. 7. Records for research & Development.

Following records should be maintained under Cost accounting Records Rules:
8. Records for by-product. 9. Records for WIP & Finished Goods. 10. Records for Cost of Production. 11. Computation of variance. 12. Statistical Data. 13. Records for Inter-company transaction. 14. Records for depreciation, interest, packing expenses etc.

List of Industries/Products require to maintain Cost Accounting Records
Cement Cycles Tyres & Tubes Caustic Sods Batteries Electric Lamps Bulk Drugs Textiles Sugar Industrial Alcohol Motor Vehicles Milk Food Chemical Industries Nylon Polyester Rayon Telecommunication Electricity Foot Wear Steel Plant

Aluminum Plantation Product Bearing Cosmetic

Audit of Cost Accounts U/s 233-B
1. Power to Order Audit
The Central Government derives the power to order any company falling under section 209 (1) (d) to get cost account audited by a Cost Accountant. A Cost Accountant should be a Cost Accountant within the meaning of CWA ACT,1949. CA may also carry out the cost audit for a specified period if sufficient Cost Accountant are not available.

Audit of Cost Accounts U/s 233-B
2. Appointment The Cost Auditor shall be appointed by the board of directors of the company with the prior approval of the Central Government. A written certificate shall be obtained by the Board from the cost auditor proposed to be appointed.

Audit of Cost Accounts U/s 233-B
3. Addition to financial Audit Cost Audit is in addition to a financial Audit. 4. Powers and Duties Cost Auditor shall have the same powers and general duties as are applicable to financial auditor of a company u/s 227(1).

Audit of Cost Accounts U/s 233-B
5. Disqualification A financial auditor cannot be appointed as a cost auditor of a same company. All disqualification which are applicable to a financial auditor are also applicable to a cost auditor.

Audit of Cost Accounts U/s 233-B
6. Company to Assist It shall be the duty of the company to give all facilities and assistance to the cost auditor in the conduct of cost accounts/records.

Audit of Cost Accounts U/s 233-B
7. Information & Explanation The company shall within 30 days of receipt of cost audit report furnish to the Central Government full Information and Explanations on every qualification contained in the said report.

Audit of Cost Accounts U/s 233-B
8. Further Explanation The Central Government may, after considering the report, call for any further information or explanation from the company.

Audit of Cost Accounts U/s 233-B
9. Necessary Action The Central Government may take necessary action on the report in accordance with any law in force for the time being.

Audit of Cost Accounts U/s 233-B
10. Report to Member The Central Government may direct the company to circulate the cost audit report to its members, along with the notice for the annual general meeting.

Audit of Cost Accounts U/s 233-B
11. Penalties and Punishment The company shall be punished with fine which may extend to Rs. 5,000 for contravention of any provisions of section 233B. Every officer who is in default shall be punished with imprisonment up to 3 years or a fine up to Rs. 5,000 or with both.

Cost Audit Report Rules-2001  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 u/s 233B(1)

Form of Report
1. Every Cost Auditor shall submit the report ( a hard & soft copy) along with auditor’s observation and suggestions, annexure and pro-forma to the Central Government in the prescribed form and at the same time forward a copy of the report to the company.

Form of Report
2. Every Cost Auditor shall also give clarifications, if any, required by the Central Government on the Cost Audit Report submitted by him within 30 days of the receipt of the communication addressed to him calling for such clarifications

Form of Report
3. Every Cost Auditor shall also give clarifications, if any, required by the Central Government on the Cost Audit Report submitted by him within 30 days of the receipt of the communication addressed to him calling for such clarifications.

Form of Report
4. The electronic form shall be authenticated by the authorised signatories using digital signatures, as defined under the Information Technology Act, 2000.

Form of Report
5. The forms prescribed in these rules, when filed in physical form, may be authenticated by authorised signatory by affixing his signature manually.

Time limit for submission of Report
 The Cost Auditor shall forward his report to the Central Government and to the concerned company within 180 days from the close of the company’s financial year to which the report relates.

Cost Accounting Record
• Without prejudice to the powers and duties the Cost Auditor shall have u/s 233B(1) of the Act, the company and every officer thereof, including the persons referred to in section 209 (6) of the Act, shall make available to the Cost Auditor with in 135 days from the close of the financial year of the company, such cost accounting records, cost statements, other books and documents, Annexure and Pro-forma to the Report, duly completed, as would be required for conducting the cost audit.

Authentication of annexure to the Cost Auditor
• The Annexure and pro-forma 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 and also by the Company Secretary and at least one Director on behalf of the company.

Penalties
 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 Rs. 5,000.

 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 section 209(6) of the Act, shall, subject to the provisions of section 233B of the Act, be punishable with fine which may extend to Rs. 5,000 & where the contravention is a continuing one, with a further fine which may extend to Rs. 500 for every day after the first day during which such contravention continues.

Penalties

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