Cost Records Applicability Determination — Companies (Cost Records and Audit) Rules, 2014

Companies Act, 2013: Section 148 — Central Government may specify class of companies to maintain cost records and get cost audit done by a Cost Accountant; cost audit report to be filed with MCA. Companies (Cost Records and Audit) Rules, 2014 (as amended 2016, 2017, 2018): Rule 3 — cost records maintenance; Table A (regulated industries) and Table B (non-regulated industries); maintenance threshold ₹35 crore overall turnover; Rule 4 — cost audit applicability; Table A audit threshold: overall turnover ≥ ₹50 crore + product/service turnover ≥ ₹25 crore; Table B audit threshold: overall turnover ≥ ₹100 crore + product/service turnover ≥ ₹35 crore. Turnover calculated from preceding financial year. Cost Accounting Standards (CAS 1-24): issued by the Institute of Cost Accountants of India (ICAI-CMA) — framework for cost records. Section 148(8) Companies Act: penalty for non-maintenance/non-audit — officer in default: imprisonment up to 1 year or fine ₹25,000 to ₹5 lakh, or both.

Many companies are required to maintain cost records and undergo a cost audit under Section 148 of the Companies Act, 2013, read with the Companies (Cost Records and Audit) Rules, 2014 ("Cost Rules"). Yet cost audit is one of the most frequently missed compliance obligations for manufacturing and service companies — because the applicability rules are nuanced and the threshold matrix is not straightforward.

The Companies (Cost Records and Audit) Rules, 2014 classify companies into two categories:

Table A — Regulated Industries: Companies engaged in production, processing, manufacturing, or mining of goods specified in Table A, or rendering services listed therein. Table A covers: petroleum products, drugs and pharmaceuticals, fertilizers, sugar, industrial alcohol, electricity, telecommunications, jute, lignite, soda ash and caustic soda, detergents, and other regulated products. For Table A companies, cost records must be maintained if the overall annual turnover from all products/services is ₹35 crore or more. Cost audit is mandatory if overall annual turnover is ₹50 crore or more AND turnover from regulated products/services is ₹25 crore or more.

Table B — Non-Regulated Industries: Companies in non-regulated sectors including machinery and mechanical appliances, auto components, tyres and tubes, paper, cement, textiles, glass, steel, aluminium, copper, zinc, electronic products, construction, hotels, hospitals, education institutions (above ₹5 crore fees), and other specified sectors. For Table B companies, cost records must be maintained if overall annual turnover is ₹35 crore or more. Cost audit is mandatory if overall annual turnover is ₹100 crore or more AND turnover from specified products/services is ₹35 crore or more.

A critical nuance: the turnover threshold is applied to the immediately preceding financial year. So a company crossing the threshold in FY 2024-25 must maintain cost records and appoint a cost auditor for FY 2025-26 onwards.

The Chartered Accountant's role in the applicability determination is to: (i) analyse the company's product/service mix against Table A and Table B of the Cost Rules; (ii) confirm whether the applicable NIC codes (National Industrial Classification codes) fall within the specified categories; (iii) verify the preceding year turnover against the prescribed thresholds; (iv) advise on the scope of cost records (which cost centres and product groups must be covered); and (v) issue a management advisory confirming applicability or non-applicability with documented reasoning for audit defence.