Cost Audit Provisions Under Companies Act 2013 (Section 148)
Updated: Sep 30
Section 148 of the Companies Act 2013 specifies the procedure regarding cost audit of specific companies.
Inclusion of Cost records
Central Government (CG) has the power to direct inclusion of cost records in the books of account of specified class of companies by a written order. Such order by the CG is to be issued notwithstanding anything contained in Chapter-X (Sections 139-148) of the CA 2013.
However, the order by CG should be passed after consulting the regulatory body of special Act companies. That means CG has the power to make rules regarding the maintenance of cost records of the companies engaged in specified industries, manufacturing of goods or providing services.
Application of Cost Records (Rule 3)
The class of companies even if they’re foreign companies are required to include cost records in their books of account as per Rule 3 of the Companies (Cost Records and Audit) Rules, 2014. Such classes of companies are classified mainly into two sectors viz. regulated and non-regulated sectors.
Thus, such class of companies engaged in the production of the goods or providing services, having at least ₹35 crore turnover in preceding financial year is supposed to include cost records in their books of account. Rule 3 isn't applicable to a company which is classified as a micro enterprise or a small enterprise including prescribed turnover criteria u/s 7(9) of the Micro, Small and Medium Enterprises Development Act, 2006.
Note that nothing that is mentioned aforesaid is supposed to apply to foreign companies only having liaison offices. Foreign companies have been defined in the act as any company or body corporate incorporated outside India which:
(a) is located for business in India either by itself or through an agent, physically or through e-mode; and
(b) is conducting any business activity in India in any other manner.
Maintenance and Audit of Cost Records
As per Rule 5 of the Companies (cost records and audit) Rules, 2014 the cost records shall be maintained in Form No. CRA-1 for each financial year.
The CG may order that the audit of cost records has to be conducted in a specified manner if having prescribed net worth or prescribed turnover. Such net worth or turnover is prescribed in the Rule 4 of the Companies (Cost Records and Audit) Rules, 2014.
For Companies in Regulated Sectors are required to get its cost records audited only if:
1) ₹50 crore or more Turnover of Company during the immediately preceding financial year; and
2) ₹25 crore or more aggregate Turnover of Products or Services.
For Companies specified in Non-Regulated Sectors are required to get its cost records audited only if:
1) ₹100 crore or more Turnover of Companies during the immediately preceding financial year; and
2) ₹35 crore aggregate Turnover of individual Products or Services.
However, the requirement for cost audit isn’t applicable to a company which is covered in rule 3 the Companies (Cost Records and Audit) Rules, 2014; and
(i) Foreign Exchange whose revenue from exports, in foreign exchange, exceeds 75% of its total revenue; or
(ii) Company which is operating from a Special Economic Zone.
(iii) Company which is engaged in generation of electricity for captive consumption through Captive Generating Plant.
The Board of Director appoints a Cost Accountant for conducting the audit of cost records. Cost auditor has to comply with the cost auditing standards while auditing as are issued by the Institute of Cost Accountants of India (ICAI) with the approval of the Central Government.
Statutory Audit (Section 143)
An audit conducted u/s 148 is in addition to the statutory audit conducted under section 143 of the CA 2013.
Qualification of Cost Auditor
The qualifications, disqualifications, rights, duties and obligations that are applicable to auditors under Chapter-X (Sections 139-148) are applicable to a cost auditor. The report on such audit of cost records is to be submitted by the cost accountant to the Board of Directors of the company.
Cost Audit Report to CG
The company has to submit the copy of the audit within 30 days from the date of receipt of a copy of the cost audit report furnishing the CG with such report along with a statement containing full information and explanation on every reservation or qualification contained therein.
Additional Information to CG
The CG after considering the cost audit report and the information and explanation furnished can call for further information and explanation.