Cost Records & Audit Rules

CMA (Dr.) BALWINDER SINGH

Chairman, Cost Accounting Standards Board
&
President (2019-20), The Institute of Cost Accountants of India
 Syllabus Coverage

• Companies (Cost Record & Audit) Rules, 2014

• Cost Accounting Standards
• Cost Auditing and Assurance Standards
 Introduction

Cost Accounting
It is a process of
• Identification
• Classification
• Measurement
• Assignment
of costs to various cost objects.
 Introduction

Who prepares Cost Records

 Responsibility of Management to prepare cost records and
cost statements

Principles to prepare Cost Records

Cost Accounting Standards are guidelines for the management
that specify
 cost accounting treatment for various cost elements
 minimum disclosure requirements
 Introduction

Cost Accounting Standards ensure

 comparability
 consistency of cost records

Who issues Cost Accounting Standards

 The Institute of Cost Accountants of India, through Cost
Accounting Standards Board
 24 Cost Accounting Standards as on date
 Cost Audit

The Institute of Cost Accountants of India, defines

 cost audit as a system of audit for the
- review,
- examination and
- appraisal of the cost accounting records
and
 attendant information, required to be maintained by specified
industries
- as mandated by the applicable Companies Act and Rules
framed thereunder.
 Statutory Framework

Section 148 of Companies Act, 2013

Maintenance of Cost Records

148(1) :
The Central Government may, by order, in respect of such
class of companies engaged in the production of such goods
or providing such services as may be prescribed, direct that
particulars relating to the utilisation of material or labour or
to other items of cost as may be prescribed shall also be
included in the books of account kept by that class of
companies
 Statutory Framework

Section 148 of Companies Act, 2013

Cost Audit
148(2) :
The Central Government may, by order, direct that the audit
of cost records of class of companies, which are covered
under Section 148(1) and which have a net worth of such
amount as may be prescribed or a turnover of such amount
as may be prescribed, shall be conducted.
 Prescription

G.S.R.425(E)– In exercise of the powers conferred by

subsections (1) and (2) of section 469 and Section 148 of
the Companies Act, 2013,
the Central Government hereby makes the following rules,
namely:

Cost Records and Audit Rules, 2014

• List of Products / Services
• Turnover criteria
• Exemptions
 Objectives of Cost Audit

Cost Audit has both general and social objectives.

The general objectives include :

 To verify cost accounts with a view to ascertaining that

these have been properly maintained and compiled
according to the cost accounting system followed by the
enterprise

 To ensure that the prescribed procedures of cost

accounting records rules are duly adhered to
 Utility / Advantage of Cost Audit

Initial
• The main objective of Cost Audit when statutorily
introduced under the provisions of the Companies Act was
to meet the Government requirements for regulating the
administered price mechanism in some core industries.
• tool for price control mechanism for consumer
• The objective was to provide an authentic data to the
Government to regulate the demand and supply in the
country through a price control mechanism.
 Utility / Advantage of Cost Audit

(a) Cost information enables the organization to structure the cost,

understand it and use it for communicating with the stakeholders.

(b) Costing is an important tool in assessing organizational

performance in.

It informs how profits and value are created, and how efficiently and
effectively operational processes transform input into output.

It contributes to the data input on economy level parameters like

resources efficiency, waste management, resources allocation policies
etc.
 Utility / Advantage of Cost Audit

(c) Costing includes product, process, and resource-related information

covering the functions of the organization and its value chain.

Costing information can be used to appraise actual performance in the

context of implemented strategies.
 Utility / Advantage of Cost Audit

Further,

Cost Audits can be used to the benefit of management, consumers

and shareholders by

(a) helping to identify weakness in cost accounting systems, and

(b) to help drive down costs by detecting wastage and inefficiencies.

(c) assistance to governments in helping to formulate tariff and

taxation policies.
 Applicability
of
Cost Records maintenance & Cost
Audit

Regulated Sectors
 Applicability
Regulated Sectors

Applicability for Cost Applicability for Cost

Records Audit
Company’s Overall
Company’s Overall turnover turnover from all its
from all its products and products and services
services exceeds Rs.35 exceeds Rs.50 Crores
Crores, in the immediately and
preceding year Aggregate turnover of the
individual product(s)/
service(s) for which cost
records are required to be
maintained exceeds Rs.25
Crores
 Applicability
List of Products / Services covered
Custom Tariff Heading
1. Telecommunication services made available to users by
means of any transmission or reception of signs, signals, N.A.
writing, images and sounds or intelligence of any nature
(other than broadcasting services) and regulated by the
Telecom Regulatory Authority of India under the
Telecom Regulatory Authority of India Act, 1997 (24 of
1997)
2. Generation, transmission, distribution and supply of
electricity regulated by the relevant regulatory body or Generation : 2016
authority under the Electricity Act, 2003 (36 of 2003),
Other Activity : N.A.
other than for captive generation (as defined under the
Electricity Rules 2005);
3. Petroleum products regulated by the Petroleum and 2709 to 2715
Natural Gas Regulatory Board under the Petroleum and Other Activity : N.A>
Natural Gas Regulatory Board Act, 2006(19 of 2006);

4. Drugs and Pharmaceuticals; 2901 to 2942, 3001 to

3006
5. Fertilisers 3102 to 3105
6. Sugar and industrial alcohol; 1701,1703,2207
https://www.cbic.gov.in/Cbec_Revamp_new/htdocs-cbec/customs/cst20
22-010522/cst-idx
 Applicability
of
Cost Records maintenance & Cost
Audit

Non-Regulated Sectors
 Applicability
Non-Regulated Sectors

Applicability for Cost Applicability for Cost

Records Audit
Company’s Overall
Company’s Overall turnover turnover from all its
from all its products and products and services
services exceeds Rs.35 exceeds Rs.100 Crores
Crores, in the immediately and
preceding year Aggregate turnover of
the individual
product(s)/ service(s) for
which cost records are required
to be maintained exceeds
Rs.35 Crores
 Applicability
S.No Industry / Sector / Product / Service CTA heading
(wherever applicable)
1. Machinery and mechanical appliances used in defence,
space and atomic energy sectors excluding any ancillary 8401 to 8402, 8801 to
item or items 8805,
Explanation- For the purpose of this sub-clause, any 8901 to 8908
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.
2. Turbo jets and turbo propellers 8411
3. Arms and ammunitions 3601 to 3603,
9301 to 9306
4. Propellant powders; prepared explosives, (other than
propellant powders); safety fuses; detonating fuses; 3601 to 3603
percussion or detonating caps; igniters; electric
detonators
5. Radar apparatus, radio navigational aid apparatus and 8526
radio remote control apparatus
 Applicability
6. Tanks and other armoured fighting vehicles, motorised, whether or
not fitted with weapons and parts of such vehicles, that are funded 8710
(investment made in the company) to the extent of ninety per cent.
or more by the Government or Government Agencies;

7. Port services of stevedoring, pilotage, hauling, mooring, re-

mooring, hooking, measuring, loading and unloading services N.A.
rendered by a Port in relation to a vessel or goods regulated by the
Tariff Authority for Major Ports under section 111 of the Major Port
Trusts Act, 1963(38 of 1963)
8. Aeronautical services of air traffic management, aircraft
operations, ground safety services, ground handling, cargo facilities N.A.
and supplying fuel rendered by airports and regulated by the
Airports Economic Regulatory Authority under the Airports Economic
Regulatory Authority of India Act, 2008 (27 of 2008)
9. Steel 7201 to
7229,
7301 to
7326
 Applicability
10. Roads and other infrastructure projects N.A.
corresponding to para No. (1)(a) as
specified in Schedule VI of the Companies
Act, 2013

(a) roads, national highways, state highways, major district

roads, other district roads and village roads, including toll
roads, bridges, highways, road transport providers and other
road-related services;
 Applicability
11. Rubber and allied products being regulated 4001 to 4017
by the Rubber Board constituted under the
Rubber Act, 1947 (XXIV of 1947)

12. Coffee and tea 0901 to 0902

13. Railway or tramway locomotives, rolling 8601 to 8608

stock, railway or tramway fixtures and
fittings, mechanical (including electro
mechanical) traffic signalling equipment’s
of all kind

14. Cement 2523, 6811 to

6812
 Applicability
15. Ores and Mineral Products 2502 to 2522,
2524 to 2526,
2528 to 2530,
2601 to 2617
16. Mineral fuels (other than Petroleum), 2701 to 2708
mineral oils etc
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
 Applicability

18. Inorganic chemicals, organic or inorganic 2801 to 2853,

compounds of precious metals, rare-earth 2901 to 2942,
metals of radioactive elements or 3801 to 3807,
isotopes, and Organic Chemicals 3402 to 3403,
3809 to 3824

19. Jute and Jute Products 5303, 5310

20. Edible Oil 1507 to 1518

 Applicability
21. Construction Industry as per Para N.A.
No.(5)(a) as specified in Schedule
VI of the Companies Act, 2013

(a) real estate development, including an industrial park or

special economic zone;
 Applicability
22. Health services, namely, N.A.
functioning as or running
hospitals, diagnostic centres,
clinical centres or test
laboratories
23. Education services, other than N.A.
such similar services falling under
philanthropy or as part of social
spend which do not form part of
any business
 Applicability

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

 Applicability
28. Paper 4801 to 4802
29. Textiles 5004 to 5007, 5106 to
5113, 5205 to 5212,
5303, 5310, 5401 to
5408, 5501 to 5516

30. Glass 7003 to 7008, 7011,

7016
31 Other Machinery 8403 to 8487
32 Electronics or Electrical 8501 to 8507, 8511 to
Machinery 8512, 8514 to 8515,
8517, 8525 to 8536,
8538 to 8547
33
Applicability
Production, import and supply or trading of following medical devices,
namely:- 9018 to 9022
(i) Cardiac Stents;
(ii) Drug Eluting Stents;
(iii) Catheters;
(iv) Intra Ocular Lenses;
(v) Bone Cements;
(vi) Heart Valves;
(vii) Orthopaedic Implants;
(viii) Internal Prosthetic Replacements;
(ix) Scalp Vein Set;
(x) Deep Brain Stimulator;
(xi) Ventricular peripheral Shud;
(xii) Spinal Implants;
(xiii) Automatic Impalpable Cardiac Deflobillator;
(xiv)Pacemaker (temporary and permanent);
(xv) patent ductus arteriosus, atrial septal defect and ventricular septal
defect closure device;
(xvi) Cardiac Re-synchronize Therapy ;
(xvii) Urethra Spinicture Devices;
(xviii) Sling male or female;
(xix) Prostate occlusion device; and
(xx) Urethral Stents.
(Note : S.No.33 not applicable to Foreign Companies having only Liasion
Offices)
 Exemption from Cost Audit
(Not from Cost Records maintenance)

Rule 4(3)

Cost audit not applicable to companies covered in Rule 3

(Previous slides)

(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

Also, Company which is engaged in generation of

electricity for captive consumption through Captive
Generating Plant.
 Illustrations
Case 1 Case 2 Case 3

Turnover of
Product/Service/Activity 10 crores 1 crores 26 crores
covered under Table B (Non-
Regulated Sector)
Turnover of
Product/Service/Activity 105 crores 105 crores 105 crores
NOT covered under Table A
or Table B
Total turnover 115 crores 106 crores 131 crores
1. Status of Cost Records Applicable Applicable Applicable
Not Not Not
2. Status of Cost Audit Applicable Applicable Applicable
Pt. 1 Yes Pt. 1 Yes Pt. 1 Yes
Pt.2 No Pt.2 No Pt.2 No
 Meaning of turnover of a product
Profit & Loss Account Rs.Crores Rs.Crores

Revenue
Turnover from all products (including GST) 38
GST 7
Net turnover 31

Other Incomes
Interest 4
Scrap Sales 2
Export Incentives 3
Total of Other Incomes 9

Total Revenue 40

Calculations for the purpose to check applicability

based on turnover criteria
Rs.Crores
Sales net of GST 31
Add: Scrap 2
Add: Export Incentive 3
Total turnover as per Cost Accounting Record Rules 36
 Turnover
FAQ 1.6 What is the meaning of “Turnover” in relation to the
Companies (Cost Records and Audit) Rules, 2014?
For the purposes of these Rules, “Turnover” means gross turnover
made by the company from the sale or supply of all products or
services during the financial year. It includes any turnover from job
work or loan license operations but exclude duties and taxes. Export
benefit received should be treated as a part of sales.

FAQ 1.7 Whether overall annual Turnover/individual turnover

definition will include other operational income like Job work
income, scrap sale, trading turnover, export benefits, sales of
services etc.?
The Turnover shall include other operational income like Job work
income, scrap sale, trading turnover, export benefits, sales of services
etc.
 Query 1

A company has units in SEZ and in non-SEZ areas. What

would be the applicability of the Companies (Cost
Records and Audit) Rules, 2014 on such a company with
respect to maintenance of cost accounting records and
Cost Audit ?
 Response
Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 is specific
and it has mandated maintenance of cost accounting records for all
products/activities listed under Table- A and Table- B subject to threshold
limits. No exemption is available to any company from maintenance of cost
accounting records one it meets the threshold limits. Hence, the above
company would be required to maintain cost accounting records for all its
units including the ones located in the special economic zone.

However, in view of the provisions of Rule 4(3) (ii) of the Companies (Cost
Records and Audit) Rules, 2017, the units located in the special economic
zone would be outside the purview of Cost Audit and the company would not
be required to include particulars of such units in its Cost Audit Report.

The other units of the company located outside the special economic zone
would be covered under Cost Audit subject to the prescribed threshold limits
 Query 2

A Company meets the threshold limits for both

maintenance of Cost Records and Cost Audit in 2018-19
and, consequently, comes under the purview of the Rules
in the year 2019-20.

If the turnover of the company gets reduced to lower than

the prescribed threshold limit in 2019-20, state whether
the Rules relating to Cost Records and Cost Audit will be
applicable for the year 2020-21?
 Response
Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, states that a
company engaged in the production of the goods and/or rendering of the
services as prescribed, having an overall turnover from all its products and/or
services of Rupees thirty five crore or more during the immediately
preceding financial year, shall include cost records for such products and/or
services in their books of account. Since the threshold limit for applicability
of maintenance of Cost Accounting Records is met in 2018-19 (Previous
Year), the Cost Records are required to be maintained from 2019-20.

Once the maintenance of Cost Records becomes applicable, it would be

maintained on a continuous basis in the subsequent years also.

Following the same line, Cost Audit will be applicable from 2019-20 and for
every year thereafter. So Cost Audit is applicable in 2020-21 also.
 Appointment of Cost Auditor

Section 148 (3) of the Companies Act, 2013

-Cost Auditor shall be appointed by the Board of

Directors.

-There is no requirement of any approval from

Central Government.
 Due Date of Appointment of Cost Auditor

Rule 6(1) of the Companies (Cost Records & Audit)

Rules, 2014,

Cost Auditor shall be appointed by the Company within

one hundred and eighty days of the commencement of
every financial year.
Intimation of Appointment to the Central Government

Rule 6(2) of the Companies (Cost Records & Audit)

Rules, 2014

Company to file notice of such appointment with the

Central Government within a period of thirty days of the
Board meeting in which such appointment is made or
within a period of one hundred and eighty days of the
commencement of the financial year, whichever is
earlier,

Form CRA-2, alongwith the specified fee.

 Financial Year 2021-22

Appointment of Cost Auditor

30 days of Board Meeting or 180 days from beginning of year, whichever is

earlier
April 30
May 31
June 30
July 31
Aug 31
Sept 27Due date 27th Sept, 2021
180
 Illustrations
Financial Year 2021-22 2021-22
Due dates for Due dates of
BoD uploading at MCA

Cost Auditor Appointment

due date - 30 days from within 30 days of
appointment by Board of 27.09.2021 BoD meeting or
Directors or 180 days from 27.09.2021, which
beginning of year ever is earlier
 Illustrations
Example 1
Due date of Appointment 27.09.2021
Actual date of Appointment 15.06.2021
Default (Late Fee +
Uploading at MCA 18.07.2021 Proceedings)

Example 2
Due date of Appointment 27.09.2021
Actual date of Appointment 27.09.2021
Default (Late Fee +
Uploading at MCA 28.09.2021 Proceedings)

Example 3
Due date of Appointment 27.09.2021
Actual date of Appointment 28.09.2021 Default (Proceedings)

Uploading at MCA 01.10.2021 Filing at Normal Fee

 Due Date of submission of Cost Audit Report by the
Cost Auditor

Rule 6(5) of the Companies (Cost Records & Audit)

Rules, 2014,

(5) Every cost auditor shall forward his duly signed report to the
Board of Directors of the company within a period of one
hundred and eighty days from the closure of the financial year
to which the report relates and the Board of Directors shall
consider and examine such report, particularly any reservation
or qualification contained there.
 Due Date of submission of Cost Audit Report by the
Company to the Govt.

Rule 6(6) of the Companies (Cost Records & Audit)

Rules, 2014

Company to submit Cost Audit Report within a period of

thirty days from the date of receipt of copy of report from
the Cost Auditor.

Form CRA-4, alongwith the specified fee.

 Illustrations
Financial Year 2021-22 2021-22
Due dates for Due dates of
submission to uploading at MCA
BoD by the Company

Submission of Cost Audit within 30 days of

Report - 180 days from submission by the
close of the year to the 27.09.2022 Cost Auditor to the
Board of Directors by the Board
Cost Auditor
 Illustrations
Example 1
Due date of Audit Report submission by
Cost Auditor 27.09.2022
Actual date of Audit Report submission by
Cost Auditor 27.09.2022 In Time
Uploading at MCA by the Company 27.10.2022 In Time

Example 2
Due date of Audit Report submission by 27.09.2022
Cost Auditor
Actual date of Audit Report submission by 23.08.2022
Cost Auditor
Uploading at MCA by the Company 25.09.2022 Default (Late Fee +
Proceedings)

Example 3
Due date of Audit Report submission by 27.09.2022
Cost Auditor
Actual date of Audit Report submission by 15.11.2022
Cost Auditor Default (Proceedings)
Uploading at MCA by the Company 18.11.2022 Filing at Normal Fee
 Extended due date
Due date of Audit Report submission by Cost 27.09.2022
Auditor
General Rule of Uploading at MCA by the within 30 days
Company

AGM due date is 30th September.

The Registrar of Companies may allow extension for holding AGM
for a period upto 3 months on application & fee by the Company.
In such case, the due date for uploading of Cost Audit Report will
be as per following clause:
The Companies which have got extension of time of holding
Annual General Meeting under section 96 (1) of the Companies
Act, 2013, may file form CRA-4 within resultant extended
period of filing financial statements under section 137 of the
Companies Act, 2013
 Rule 5

5. Maintenance of records.-
(1) Every company under these rules including all units
and branches thereof, shall, in respect of each of its
financial year commencing on or after the 1st day of
April, 2014, maintain cost records in form CRA-1.

(2) The cost records referred to in sub-rule (1) shall be

maintained on regular basis in such manner asto
facilitate calculation of per unit cost of production or
cost of operations, cost of sales and margin for each of
its products and activities for every financial year on
monthly or quarterly or half-yearly or annual basis.
 Rule 5

(3) The cost records shall be maintained in such

manner so as to enable the company to exercise, as
far as possible, control over the various operations
and costs to achieve optimum economies in
utilisation of resources and these records shall also
provide necessary data which is required to be
furnished under these rules.
 CRA-1

Forms in which cost records shall be maintained

[Pursuant to rule 5(1)]

The form CRA-1 prescribes the form in which cost records shall be
maintained.

The form categorises the requirement of maintaining proper details as per 31

headings.

The headings are as follows:

(1) Material Cost

(2) Employee Cost

(3) Utilities
 CRA-1

(4) Direct Expenses

(5) Repair and Maintenance

(6) Fixed Assets and Depreciation

(7) Overheads

(8) Administrative Overheads

(9) Transportation Cost

(10) Royalty and Technical Know-how

(11) Research and Development expenses

(12) Quality Control Expenses

(13) Pollution Control Expenses

 CRA-1

(14) Service Department Expenses

(15) Packing Expenses

(16) Finance Costs

(17) Any other item of Cost

(18) Capacity Determination

(19) Work-in-progress and finished stock

(20) Captive Consumption

(21) By-Products and Joint Products

(22) Adjustment of Cost Variances

(23) Reconciliation of Cost and Financial Accounts

 CRA-1

(24) Related Party Transactions

(25) Expenses or Incentives on Exports

(26) Production records

(27) Sales records

(28) Cost Statements

(29) Statistical Records

(30) Records of Physical Verification

(31) Unit of Measurement (UoM).