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Audit & Assurance

Cost Audit

Cost Audit

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SCOPEConfirmed in writing
TYPICAL TIMELINE45 days
APPLICABLE TOCompany

Regulatory Framework

Section 148 of the Companies Act, 2013 empowers the Central Government to direct that specified classes of companies maintain cost records and subject them to audit by a Cost Accountant in practice, distinct from the statutory financial audit under Section 143. The governing subordinate legislation is the Companies (Cost Records and Audit) Rules, 2014 (as amended in 2016, 2017 and 2018).

Rule 3 prescribes cost-record maintenance for companies engaged in production of goods or services listed in Table A (regulated sectors, e.g. telecom, electricity, petroleum, pharma, fertilisers) or Table B (non-regulated sectors), where overall annual turnover from all products and services is ₹35 crore or more in the immediately preceding financial year.

Rule 4 sets the higher threshold that triggers a mandatory cost audit: for Table A companies, overall turnover of ₹50 crore or more and turnover from the individual product/service under audit of ₹25 crore or more; for Table B companies, overall turnover of ₹100 crore or more and turnover from the individual product/service of ₹35 crore or more, both computed on the preceding financial year's figures.

Once applicable, the audit is conducted against the Cost Accounting Standards (CAS 1-24) issued by the Institute of Cost Accountants of India. The appointed cost auditor's report is furnished to the Board in Form CRA-3 within 180 days of the close of the financial year (Rule 6(5)), and the company must then file it with the Ministry of Corporate Affairs in Form CRA-4 within 30 days of receiving the CRA-3 report (Rule 6(6)). Failure to maintain records or conduct the audit attracts penalty under Section 148(8): the officer in default is liable to imprisonment up to one year, or a fine between ₹25,000 and ₹5 lakh, or both.

Overview

The Companies (Cost Records and Audit) Rules, 2014 require companies in specified industries (pharmaceuticals, chemicals, fertilisers, sugar, cement, steel, electricity, telecom, petroleum, and others) above prescribed turnover thresholds to maintain cost records and, in many cases, submit a Cost Audit Report to the MCA. The cost audit examines production cost statements, cost of goods sold, capacity utilisation, and product/segment profitability. The report is prepared by a Cost Accountant (CMA) and filed in Form CRA-4 with the MCA. We coordinate with CMAs, handle cost record maintenance support, and manage the filing lifecycle.

Frequently Asked Questions

Which companies are required to get a cost audit done?
Companies covered under the Companies (Cost Records and Audit) Rules 2014 (CRA Rules) — notified under Section 148 of the Companies Act 2013 — must maintain cost records and get them audited if their overall annual turnover from all products and services is Rs 50 crore or more, and the turnover from the regulated or non-regulated sector product or service covered under Table A or Table B of Rule 3 is Rs 25 crore or more. The MCA notification SO 1747(E) dated 30 June 2014 (as amended) lists the applicable industry codes.
Who can conduct a cost audit and what is the appointment process?
Only a Cost Accountant in practice (member of ICAI holding a certificate of practice) can be appointed as cost auditor under Section 148(3) of the Companies Act 2013. The Board appoints the cost auditor within 180 days of the financial year start. Form CRA-2 (intimation of appointment) must be filed with the MCA within 30 days of the Board resolution or before September 30 of the financial year, whichever is earlier, as required under Rule 6(2) of the CRA Rules.
What records must be maintained and in what format?
Rule 5 of the CRA Rules requires companies to maintain cost records in Form CRA-1, which prescribes the format for cost statements covering material costs, employee costs, utilities, depreciation, quality control, research and development, and royalty or technical know-how fees. These records must be maintained on a regular basis so as to make it possible to calculate the cost of production, cost of sales, and margin for each product or service. Records must be preserved for eight financial years under Rule 5(2).
When is the cost audit report due and what form is used for filing?
The cost auditor must submit the cost audit report to the Board of Directors within 180 days from the close of the financial year. The Board must then file the report with the Central Government in Form CRA-4 (in XBRL format) within 30 days of receipt of the report, under Rule 6(6) of the CRA Rules. Failure to file attracts penalties under Section 148(8) read with Section 147 of the Companies Act 2013.
What are the penalties for non-compliance with cost audit requirements?
Under Section 148(8) of the Companies Act 2013, if a company fails to comply with cost audit requirements, the company and every officer in default shall be punishable with fine of not less than Rs 25,000 and up to Rs 5,00,000. The cost auditor who fails to comply is punishable with fine ranging from Rs 25,000 to Rs 5,00,000. Failure to maintain cost records under Section 148(1) can additionally attract prosecution under Section 128 read with Section 147.

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