Revision of Cost Audit | Section 148 of Companies Act | CA Intermediate l Audit and Law

Summary

This video provides a comprehensive guide to cost auditing under Section 148 of the Companies Act, 2013. It explains the rules for maintaining cost records, which companies need to conduct a cost audit, and the applicability of cost audits based on company size, sector, and turnover. The video also covers the process of appointing cost auditors, the deadlines for submission of audit reports, and specific provisions for companies in regulated or non-regulated sectors, including exemptions for small businesses and those in Special Economic Zones. This is a crucial resource for understanding compliance with cost audit regulations.

Takeaways

• 😀 Cost Audit under Section 148 of the Companies Act applies to companies engaged in the production and manufacturing of goods and services, and those with a turnover greater than or equal to ₹35 crore.
• 😀 Not all companies are required to undergo cost audits; small companies and those falling under MSME criteria (Micro and Small Companies Act, 2006) are exempted.
• 😀 The cost auditor's primary role is to audit the company's records related to cost, ensuring they maintain detailed documentation of operational costs like raw materials, labor, etc.
• 😀 Companies must maintain their records under the format prescribed by the Cost Records and Audit Rules, 2014, specifically in Form CRA-1 for cost reporting.
• 😀 A cost audit is mandatory only for specific classes of companies involved in production or manufacturing, and not for companies solely providing services.
• 😀 For regulated sectors (such as pharmaceuticals, telecom, and electricity), the cost audit applies if the total turnover exceeds ₹50 crore or if individual turnover exceeds ₹25 crore.
• 😀 Non-regulated sectors (like steel, cement, arms, and ammunition) require cost audits if the overall turnover exceeds ₹100 crore and individual turnover exceeds ₹35 crore.
• 😀 Special Economic Zone (SEZ) companies are exempt from cost audit requirements but still need to maintain cost records under Form CRA-1.
• 😀 Companies generating electricity for captive consumption through a plant are also subject to cost audit as mandated under Section 148.
• 😀 The cost auditor is appointed by the Board of Directors within 180 days of the commencement of the financial year, and the appointment must be communicated to the government using Form CRA-2 within 30 days of the board resolution.
• 😀 The audit report, prepared by the cost auditor, must be submitted to the Board of Directors within 180 days from the end of the financial year. The final report must be submitted to the central government within 30 days of receipt by the Board.

Q & A

What is cost audit under Section 148 of the Companies Act, 2013?

Cost audit under Section 148 of the Companies Act, 2013 is a process where companies are required to maintain detailed records of their operational costs, especially when involved in the production and manufacturing of goods and services. It is aimed at ensuring compliance and efficiency in cost management.

Which companies are required to undergo a cost audit?

Cost audit is applicable to companies engaged in the production and manufacturing of goods and services, including foreign companies. It applies to companies with a turnover of ₹35 crore or more. Small and micro companies as defined under the MSME Act are exempt from this requirement.

Are micro and small companies exempt from cost audit?

Yes, micro and small companies under the MSME Act, 2006 are exempt from the cost audit requirements. These companies fall under specific criteria based on turnover and capital, which disqualify them from the cost audit provisions.

What is the turnover limit for companies to be subjected to cost audit in regulated sectors?

For companies in regulated sectors, cost audit is mandatory if their total turnover is ₹50 crore or more, or if the individual turnover of a specific sector (such as pharmaceuticals, electricity, etc.) exceeds ₹25 crore.

What are the criteria for cost audit applicability in non-regulated sectors?

In non-regulated sectors, cost audit applies to companies with an overall turnover exceeding ₹100 crore, and individual turnover in any specific sector must exceed ₹35 crore for the audit to be applicable.

What are the key sectors included under the regulated sectors for cost audit?

Regulated sectors for cost audit include industries such as pharmaceuticals, industrial alcohol, electricity, telecom, gas, sugar, and petroleum, among others. These sectors are subject to strict cost audit regulations.

Are companies in Special Economic Zones (SEZs) required to undergo cost audit?

No, companies operating in Special Economic Zones (SEZs) are exempt from cost audit. These companies receive various benefits, including tax exemptions and relaxations in the cost audit requirement.

What happens if a company fails to appoint a cost auditor within the required time frame?

If a company fails to appoint a cost auditor within 180 days from the start of the financial year, they must fill the vacancy and submit the necessary forms, such as Form CRA-2, within 30 days of the board's resolution.

What is the deadline for the cost auditor to submit their report?

The cost auditor must submit their audit report (Form CRA-3) within 180 days from the end of the financial year. This is necessary for compliance with cost audit regulations.

What is the procedure for filing the cost audit report with the Central Government?

After the cost auditor submits the report to the company, the board of directors must file the report with the Central Government using Form CRA-F within 30 days from the receipt of the audit report.