Cost audit applicability provisions are contained under rule 4 of the Companies (Cost Records and Audit) Rules, 2014. Section 148 of the Companies Act, 2013 contains provisions relating to the cost records and cost audit applicability under the Companies Act. The primary goal of cost audit is to ensure that the cost relating to production and sales encompass only those factors which are imperative and that those factors are utilized most effectively.
Define Cost accountant:
Cost Accountant means a cost accountant as defined in Section 2 (1) (b) of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under Section 6 (1) of the Act. The auditor conducting the cost audit shall comply with the cost auditing standards
To conduct the cost audit, the person should be a member of the Institute of Cost Accountants of India, constituted under the Cost and Works Accountants Act, 1959 and shall hold a valid membership and certificate of practice.
Kindly note: Statutory Auditor appointed under Section 139 of the Companies Act 2013, can’t be appointed as Cost Auditor of the Company.
A. In the case of companies having an Audit Committee:
- The Audit Committee shall recommend the Board, whether an individual who is cost accountant or a firm of cost accountants in practice, to be appointed as the cost auditor in the company.
- The Audit Committee shall also recommend to the Board the remuneration payable to such cost auditor.
- The Board shall consider and approve the recommendation of the Audit Committee regarding appointment and remuneration of the cost auditor.
- The remuneration payable to the cost auditor shall be later ratified by the members.
B. In the case of companies not having Audit Committee:
- The Board shall appoint an individual who is cost accountant or a firm of cost accountants in practice, as cost auditor of the company.
- The remuneration payable to the cost auditor shall be ratified by the shareholders subsequently.
Appointment process in brief:
- Prepare notice of board meeting along with draft resolution(s).
- Send engagement letter or consent letter from the proposed Cost Auditor.
- Obtain consent letter from Cost Auditor.
- Sending of Notice along with Agenda of Board meeting to all the Directors of company w.r.t. ratification of appointment of cost auditor by shareholder of company.
- Convene board meeting and pass the necessary Resolution.
- Sending of Outcome of Board Meeting to Stock exchange – if Company is Listed
- Send Appointment letter Cost Auditor.
- File e-Form returns along with attachments with the Registrar of Companies regarding appointment of Cost Auditor within stipulated timeline.
- Convene General Meeting and passing of necessary resolutions.
- Intimation to stock exchange – if Company is listed.
- File necessary E-forms with the MCA / ROC
- Record in register, minute books, etc of company
ROC Filing Requirements:
As per the provision of Rule 6(2) of the Companies (Cost Records and Audit) Rules, 2014:
Every company required to appoint cost auditor shall inform the Cost auditor of his appointment:
- within a period of 30 days from the date of the Board Meeting at which the appointment was approved by the Board
- Within 180 days from the commencement of the financial year, whichever is earlier.
and file e-Form CRA-2 with the Central Government along with such fees as may be applicable.
Some more key points to be remember:
- Limit of number of Cost audit per person, as are applicable to Statutory Auditors are applicable to Cost Auditors.
- The qualification, disqualification, rights, duties and obligations of Cost Auditor/firm of Cost Auditor are same as applicable to Statutory Auditors.
- A Cost auditor has to be appointed within one 180 days from the starting of Financial Year by every company on whom these provisions are applicable.
- Any casual vacancy caused due to resignation or death or removal shall be filled in by the Board within a period of 30 days from the occurrence of such vacancy and appoint another cost auditor.
- Within 30 days from the receipt’s date of a copy of the audit report, every company falling under said rules shall facilitate the authority with such report in form CRA 4 form in prescribed format and fees.
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