Cost Auditor Section 148 of Companies Act, 2013
Section 148 of Companies act 2013 mandates the maintenance of cost records and the appointment of a Cost Auditor for certain companies.
This provision ensures transparency in cost accounting and helps regulators monitor pricing strategies, efficiency, and financial health. Below is a detailed discussion on the role, applicability, appointment, and responsibilities of a Cost Auditor under this section.
1. Overview of Cost Auditor Section 148 of the Companies Act 2013
Section 148 empowers the Central Government to direct certain classes of companies to maintain cost records and conduct a cost audit. The objective is to ensure that companies maintain proper cost accounting records and that their pricing strategies align with regulatory norms.
Key Provisions of Cost Auditor Section 148 of the Companies Act 2013
- The Central Government specifies the companies required to maintain cost records.
- Companies engaged in the production of certain goods or services must include cost details in their books of accounts.
- The appointment of a Cost Auditor is mandatory for companies meeting prescribed financial thresholds.
- The audit report must be submitted to the Board of Directors and the Central Government.
2. Applicability of Cost Auditor Section 148 of the Companies Act 2013
Companies Required to Maintain Cost Records
As per Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, companies engaged in the production of goods or services listed in Table A and Table B must maintain cost records if their turnover exceeds ₹35 crore in the preceding financial year.
Companies Required to Conduct Cost Audit
The applicability of cost audit depends on whether the company operates in a regulated or non-regulated sector:
| Sector | Overall Turnover Threshold | Individual Product/Service Turnover Threshold |
|---|---|---|
| Regulated Sector (Telecom, Electricity, Petroleum, Drugs, Fertilizers, Sugar) | ₹50 crore or more | ₹25 crore or more |
| Non-Regulated Sector | ₹100 crore or more | ₹35 crore or more |
Exemptions from Cost Audit
Certain companies are exempt from cost audit, including:
- Companies with export revenue exceeding 75% of total revenue.
- Companies operating in Special Economic Zones (SEZs).
- Companies engaged in captive electricity generation.
3. Appointment of Cost Auditor Section 148 of the Companies Act 2013
Eligibility Criteria
A Cost Auditor must be:
- A Cost Accountant in practice.
- A firm of Cost Accountants or a Limited Liability Partnership (LLP) of Cost Accountants.
Restrictions
- A Statutory Auditor appointed under Section 139 cannot be appointed as a Cost Auditor.
- The Cost Auditor must comply with Cost Auditing Standards issued by the Institute of Cost Accountants of India (ICAI).
Process of Appointment
- Board Approval: The Board of Directors appoints the Cost Auditor.
- Audit Committee Recommendation: If the company has an Audit Committee, it recommends the appointment and remuneration.
- Shareholder Ratification: The shareholders must ratify the remuneration.
- Government Intimation: The company must inform the Central Government by filing Form CRA-2 within 30 days of the Board resolution or 180 days from the start of the financial year, whichever is earlier.
4. Responsibilities of a Cost Auditor
The Cost Auditor plays a crucial role in ensuring financial discipline and regulatory compliance. Their key responsibilities include:
1. Examining Cost Records
- Verifies cost accounting records maintained by the company.
- Ensures compliance with Cost Accounting Standards.
2. Conducting Cost Audit
- Reviews cost structures and pricing strategies.
- Identifies inefficiencies in production and resource utilization.
3. Preparing Cost Audit Report
- Submits the audit report to the Board of Directors.
- Ensures compliance with Cost Auditing Standards.
4. Filing Cost Audit Report with the Government
- The company must submit the cost audit report to the Central Government within 30 days of receiving it.
- The report must be filed using XBRL taxonomy for financial years starting from April 1, 2014.
5. Compliance
Compliance Requirements
- Companies must maintain cost records in Form CRA-1.
- The Cost Auditor must follow Cost Auditing Standards.
- The audit report must be submitted within the prescribed timeline.
6. Frequently Asked Questions (FAQs)
Q1: What is the primary objective of cost audit?
Cost audit ensures transparency in cost accounting, helps regulators monitor pricing strategies, and improves efficiency in resource utilization.
Q2: Who appoints the Cost Auditor?
The Board of Directors appoints the Cost Auditor, with recommendations from the Audit Committee (if applicable) and ratification by shareholders.
Q3: Can a Statutory Auditor also be a Cost Auditor?
No, a Statutory Auditor appointed under Section 139 cannot be appointed as a Cost Auditor.
Q4: What happens if a company fails to conduct a cost audit?
Non-compliance can lead to monetary penalties, regulatory scrutiny, and legal consequences.
Q5: How is the cost audit report submitted to the government?
The report must be filed using XBRL taxonomy within 30 days of receiving it.
Conclusion
The Cost Auditor, under Section 148 of the Companies Act, 2013, plays a vital role in ensuring financial transparency and regulatory compliance. By maintaining cost records and conducting audits, companies can improve efficiency, optimize pricing strategies, and enhance corporate governance. Proper implementation of cost audit provisions helps businesses align with regulatory norms and build investor confidence.