When is a cost audit compulsory?

When do cost records apply?

Cost records apply before a cost audit does. Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, read with section 148(1), covers a company, including a foreign company under section 2(42), that produces goods or provides services specified in the rule 3 table and had overall turnover from all products and services of ₹35 crore or more in the immediately preceding financial year.

The table is split. Item (A) is regulated sectors. Item (B) is non-regulated sectors. Match the company's goods or services to the table before you apply the rupee test. A company outside both tables does not keep cost records under these rules, whatever its turnover.

Rule 5 says the records are kept in Form CRA-1, on a regular basis, so that per-unit cost of production or operations, cost of sales and margin can be calculated for every financial year. This is a standing books duty. It is not a yearly form filed with the Registrar.

When does cost audit apply?

Cost audit applies only when rule 4 is also met. Keeping cost records at ₹35 crore does not, by itself, mean the cost records must be audited.

Both columns are tested on the immediately preceding financial year. The second column is the aggregate turnover of the individual product or service for which rule 3 requires cost records, not a slice the company picks. Miss either column and rule 4 does not apply.

Is a foreign company in the same test?

Yes, if it is a foreign company as defined in section 2(42) and it is engaged in a table product or service. Rule 3 names foreign companies in the class that must include cost records. Rule 4 then applies its turnover tests to a company specified in item (A) or item (B) of rule 3.

Who is exempt from cost audit?

Rule 4(3) takes three cases out of cost audit even when the company is covered by rule 3. Revenue from exports, in foreign exchange, above 75 percent of total revenue is the first. Operating from a special economic zone is the second. Generation of electricity for captive consumption through a captive generating plant, as rule 3 of the Electricity Rules, 2005 uses that term, is the third.

A company that only generates electricity for its own consumption, and fits the captive-plant definition, is out of the audit under rule 4(3)(iii). A company that sells power is not in that limb.

When is the cost auditor appointed?

Rule 6(1) requires the appointment within 180 days of the start of every financial year. For a year that begins on 1 April, that is 28 September. Before the appointment, the company must have the cost auditor's written consent and the certificate in rule 6(1A): eligibility, the section 141 limits so far as they apply, and a true list of pending professional-conduct proceedings.

Section 148(3) says the Board appoints a cost accountant in practice. The person appointed as auditor under section 139 cannot take the cost audit. The cost auditor must comply with the cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval. The audit is in addition to the audit under section 143.

Who approves the fee?

Rule 14 of the Companies (Audit and Auditors) Rules, 2014 answers that. Where an audit committee is required, the committee recommends the cost auditor and the remuneration, the Board approves, and shareholders ratify later. Where no audit committee is required, the Board appoints, and shareholders still ratify the remuneration.

Rule 6(2) then requires Form CRA-2 with the Central Government. The due point is the earlier of 30 days from the Board meeting that made the appointment, and 180 days from the start of the financial year. A casual vacancy from resignation, death or removal is filled by the Board within 30 days, and CRA-2 for that appointment goes in within 30 days of it.

When is Form CRA-4 due?

The cost auditor forwards the report to the Board within 180 days from the close of the financial year, in Form CRA-3, under rule 6(4) and rule 6(5). The Board considers the report, including any reservation or qualification. The company then has 30 days from receipt to furnish that report to the Central Government in Form CRA-4, in XBRL, under rule 6(6) and section 148(6).

One proviso shifts that 30-day CRA-4 clock. A company that has an extension for holding its annual general meeting under section 96(1) may file CRA-4 within the extended period that then applies to filing financial statements under section 137. Without that extension, the 30 days from receipt still runs.

1. Appoint the cost auditor within 180 days of the year starting, with consent and the rule 6(1A) certificate.
2. File CRA-2 by the earlier of 30 days from that Board meeting and 180 days from the year starting.
3. Get the CRA-3 report from the cost auditor within 180 days of the year closing.
4. File CRA-4 in XBRL within 30 days of receiving the report, unless the section 96(1) proviso applies.

What penalty follows a cost audit default?

Section 148(8)(a) punishes the company and every officer in default in the manner of section 147(1). Section 31 of the Companies (Amendment) Act, 2020 omitted the imprisonment words in that subsection. The company fine is not less than ₹25,000 and may extend to ₹5 lakh. The officer fine is not less than ₹10,000 and may extend to ₹1 lakh. There is no imprisonment in section 147(1) after that amendment.

The cost auditor who is in default is punishable in the manner of section 147(2) to (4), under section 148(8)(b). Section 143(12), on reporting fraud, also applies to the cost auditor while the cost audit is underway, because rule 6(7) says so. A change to these forms shows up as an MCA notification. Track it on the MCA updates feed before you reuse a CRA-2 checklist from an older financial year.