CMA Dr BALWINDER SINGH Chairman Cost Accounting Standards Board amp President 201920 The Institute of Cost Accountants of India Syllabus Coverage Companies Cost Record amp Audit Rules 2014 ID: 1018671
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1. Cost Records & Audit RulesCMA (Dr.) BALWINDER SINGHChairman, Cost Accounting Standards Board&President (2019-20), The Institute of Cost Accountants of India
2. Syllabus CoverageCompanies (Cost Record & Audit) Rules, 2014Cost Accounting StandardsCost Auditing and Assurance Standards
3. IntroductionCost AccountingIt is a process of IdentificationClassificationMeasurement Assignment of costs to various cost objects.
4. IntroductionWho prepares Cost RecordsResponsibility of Management to prepare cost records and cost statementsPrinciples to prepare Cost RecordsCost Accounting Standards are guidelines for the management that specifycost accounting treatment for various cost elementsminimum disclosure requirements
5. IntroductionCost Accounting Standards ensurecomparabilityconsistency of cost recordsWho issues Cost Accounting StandardsThe Institute of Cost Accountants of India, through Cost Accounting Standards Board24 Cost Accounting Standards as on date
6. Cost AuditThe Institute of Cost Accountants of India, defines cost audit as a system of audit for thereview,examination and appraisal of the cost accounting records and attendant information, required to be maintained by specified industriesas mandated by the applicable Companies Act and Rules framed thereunder.
7. Statutory FrameworkSection 148 of Companies Act, 2013Maintenance of Cost Records148(1) :The Central Government may, by order, in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies
8. Statutory FrameworkSection 148 of Companies Act, 2013Cost Audit148(2) :The Central Government may, by order, direct that the audit of cost records of class of companies, which are covered under Section 148(1) and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted.
9. PrescriptionG.S.R.425(E)– In exercise of the powers conferred by subsections (1) and (2) of section 469 and Section 148 of the Companies Act, 2013,the Central Government hereby makes the following rules, namely:Cost Records and Audit Rules, 2014List of Products / ServicesTurnover criteriaExemptions
10. Objectives of Cost AuditCost Audit has both general and social objectives. The general objectives include : To verify cost accounts with a view to ascertaining that these have been properly maintained and compiled according to the cost accounting system followed by the enterprise To ensure that the prescribed procedures of cost accounting records rules are duly adhered to
11. Utility / Advantage of Cost Audit InitialThe main objective of Cost Audit when statutorily introduced under the provisions of the Companies Act was to meet the Government requirements for regulating the administered price mechanism in some core industries. tool for price control mechanism for consumerThe objective was to provide an authentic data to the Government to regulate the demand and supply in the country through a price control mechanism.
12. Utility / Advantage of Cost Audit (a) Cost information enables the organization to structure the cost, understand it and use it for communicating with the stakeholders. (b) Costing is an important tool in assessing organizational performance in. It informs how profits and value are created, and how efficiently and effectively operational processes transform input into output. It contributes to the data input on economy level parameters like resources efficiency, waste management, resources allocation policies etc.
13. Utility / Advantage of Cost Audit (c) Costing includes product, process, and resource-related information covering the functions of the organization and its value chain. Costing information can be used to appraise actual performance in the context of implemented strategies.
14. Utility / Advantage of Cost Audit Further, Cost Audits can be used to the benefit of management, consumers and shareholders by helping to identify weakness in cost accounting systems, and to help drive down costs by detecting wastage and inefficiencies. assistance to governments in helping to formulate tariff and taxation policies.
15. Applicability of Cost Records maintenance & Cost Audit Regulated Sectors
16. ApplicabilityRegulated Sectors Applicability for Cost RecordsApplicability for Cost AuditCompany’s Overall turnover from all its products and services exceeds Rs.35 Crores, in the immediately preceding yearCompany’s Overall turnover from all its products and services exceeds Rs.50 CroresandAggregate turnover of the individual product(s)/ service(s) for which cost records are required to be maintained exceeds Rs.25 Crores
17. ApplicabilityList of Products / Services covered 1.Telecommunication services made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature (other than broadcasting services) and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997)N.A.2.Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003), other than for captive generation (as defined under the Electricity Rules 2005);Generation : 2016Other Activity : N.A.3.Petroleum products regulated by the Petroleum and Natural Gas Regulatory Board under the Petroleum and Natural Gas Regulatory Board Act, 2006(19 of 2006);2709 to 2715Other Activity : N.A>4.Drugs and Pharmaceuticals;2901 to 2942, 3001 to 30065.Fertilisers3102 to 31056.Sugar and industrial alcohol;1701,1703,2207Custom Tariff Headinghttps://www.cbic.gov.in/Cbec_Revamp_new/htdocs-cbec/customs/cst2022-010522/cst-idx
18. Applicability of Cost Records maintenance & Cost Audit Non-Regulated Sectors
19. ApplicabilityNon-Regulated Sectors Applicability for Cost RecordsApplicability for Cost AuditCompany’s Overall turnover from all its products and services exceeds Rs.35 Crores, in the immediately preceding yearCompany’s Overall turnover from all its products and services exceeds Rs.100 CroresandAggregate turnover of the individual product(s)/ service(s) for which cost records are required to be maintained exceeds Rs.35 Crores
20. ApplicabilityS.NoIndustry / Sector / Product / ServiceCTA heading (wherever applicable)1.Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding any ancillary item or itemsExplanation- For the purpose of this sub-clause, any company which is engaged in any item or items supplied exclusively for use under this clause, shall be deemed to be covered under these rules. 8401 to 8402, 8801 to 8805,8901 to 8908 2.Turbo jets and turbo propellers84113.Arms and ammunitions3601 to 3603,9301 to 93064.Propellant powders; prepared explosives, (other than propellant powders); safety fuses; detonating fuses; percussion or detonating caps; igniters; electric detonators3601 to 36035.Radar apparatus, radio navigational aid apparatus and radio remote control apparatus8526
21. Applicability6.Tanks and other armoured fighting vehicles, motorised, whether or not fitted with weapons and parts of such vehicles, that are funded (investment made in the company) to the extent of ninety per cent. or more by the Government or Government Agencies;87107.Port services of stevedoring, pilotage, hauling, mooring, re-mooring, hooking, measuring, loading and unloading services rendered by a Port in relation to a vessel or goods regulated by the Tariff Authority for Major Ports under section 111 of the Major Port Trusts Act, 1963(38 of 1963)N.A.8.Aeronautical services of air traffic management, aircraft operations, ground safety services, ground handling, cargo facilities and supplying fuel rendered by airports and regulated by the Airports Economic Regulatory Authority under the Airports Economic Regulatory Authority of India Act, 2008 (27 of 2008)N.A.9.Steel7201 to 7229, 7301 to 7326
22. Applicability10.Roads and other infrastructure projects corresponding to para No. (1)(a) as specified in Schedule VI of the Companies Act, 2013 N.A.(a) roads, national highways, state highways, major district roads, other district roads and village roads, including toll roads, bridges, highways, road transport providers and other road-related services;
23. Applicability11.Rubber and allied products being regulated by the Rubber Board constituted under the Rubber Act, 1947 (XXIV of 1947)4001 to 401712.Coffee and tea0901 to 090213.Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signalling equipment’s of all kind8601 to 860814.Cement2523, 6811 to 6812
24. Applicability15.Ores and Mineral Products 2502 to 2522,2524 to 2526,2528 to 2530,2601 to 261716.Mineral fuels (other than Petroleum), mineral oils etc2701 to 270817.Base metals7401 to 7403, 7405 to 7413, 7419, 7501 to 7508, 7601 to 7614, 7801 to 7802, 7804, 7806, 7901 to 7905, 7907, 8001, 8003, 8007, 8101 to 8113
25. Applicability18.Inorganic chemicals, organic or inorganic compounds of precious metals, rare-earth metals of radioactive elements or isotopes, and Organic Chemicals2801 to 2853, 2901 to 2942, 3801 to 3807,3402 to 3403, 3809 to 3824 19.Jute and Jute Products5303, 531020.Edible Oil1507 to 1518
26. Applicability21.Construction Industry as per Para No.(5)(a) as specified in Schedule VI of the Companies Act, 2013 N.A.(a) real estate development, including an industrial park or special economic zone;
27. Applicability22.Health services, namely, functioning as or running hospitals, diagnostic centres, clinical centres or test laboratoriesN.A.23.Education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any businessN.A.
28. Applicability24.Milk powder040225.Insecticides380826.Plastics and polymers 3901 to 3914, 3916 to 3921, 392527.Tyres and tubes4011 to 4013
29. Applicability28.Paper4801 to 480229.Textiles5004 to 5007, 5106 to 5113, 5205 to 5212, 5303, 5310, 5401 to 5408, 5501 to 551630.Glass7003 to 7008, 7011, 701631Other Machinery8403 to 848732Electronics or Electrical Machinery8501 to 8507, 8511 to 8512, 8514 to 8515, 8517, 8525 to 8536, 8538 to 8547
30. Applicability33Production, import and supply or trading of following medical devices, namely:-(i) Cardiac Stents;(ii) Drug Eluting Stents;(iii) Catheters;(iv) Intra Ocular Lenses;(v) Bone Cements;(vi) Heart Valves;(vii) Orthopaedic Implants;(viii) Internal Prosthetic Replacements;(ix) Scalp Vein Set;(x) Deep Brain Stimulator;(xi) Ventricular peripheral Shud;(xii) Spinal Implants;(xiii) Automatic Impalpable Cardiac Deflobillator;(xiv)Pacemaker (temporary and permanent);(xv) patent ductus arteriosus, atrial septal defect and ventricular septal defect closure device;(xvi) Cardiac Re-synchronize Therapy ;(xvii) Urethra Spinicture Devices;(xviii) Sling male or female;(xix) Prostate occlusion device; and(xx) Urethral Stents.(Note : S.No.33 not applicable to Foreign Companies having only Liasion Offices)9018 to 9022
31. Exemption from Cost Audit (Not from Cost Records maintenance)Rule 4(3) Cost audit not applicable to companies covered in Rule 3 (Previous slides)whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue; or which is operating from a special economic zoneAlso, Company which is engaged in generation of electricity for captive consumption through Captive Generating Plant.
32. IllustrationsTurnover of Product/Service/Activity covered under Table B (Non-Regulated Sector)10 crores1 crores26 croresTurnover of Product/Service/Activity NOT covered under Table A or Table B105 crores105 crores105 croresTotal turnover115 crores106 crores131 crores1. Status of Cost RecordsApplicableApplicableApplicable2. Status of Cost AuditNot ApplicableNot ApplicableNot ApplicablePt. 1 YesPt. 1 YesPt. 1 YesPt.2 NoPt.2 NoPt.2 No Case 1 Case 2 Case 3
33. Meaning of turnover of a productProfit & Loss AccountRs.CroresRs.CroresRevenueTurnover from all products (including GST)38GST7Net turnover 31Other IncomesInterest4Scrap Sales2Export Incentives3Total of Other Incomes 9Total Revenue 40Calculations for the purpose to check applicability based on turnover criteriaRs.CroresSales net of GST31Add: Scrap2Add: Export Incentive3Total turnover as per Cost Accounting Record Rules36
34. TurnoverFAQ 1.6 What is the meaning of “Turnover” in relation to the Companies (Cost Records and Audit) Rules, 2014?For the purposes of these Rules, “Turnover” means gross turnover made by the company from the sale or supply of all products or services during the financial year. It includes any turnover from job work or loan license operations but exclude duties and taxes. Export benefit received should be treated as a part of sales.FAQ 1.7 Whether overall annual Turnover/individual turnover definition will include other operational income like Job work income, scrap sale, trading turnover, export benefits, sales of services etc.?The Turnover shall include other operational income like Job work income, scrap sale, trading turnover, export benefits, sales of services etc.
35. Query 1A company has units in SEZ and in non-SEZ areas. What would be the applicability of the Companies (Cost Records and Audit) Rules, 2014 on such a company with respect to maintenance of cost accounting records and Cost Audit ?
36. ResponseRule 3 of the Companies (Cost Records and Audit) Rules, 2014 is specific and it has mandated maintenance of cost accounting records for all products/activities listed under Table- A and Table- B subject to threshold limits. No exemption is available to any company from maintenance of cost accounting records one it meets the threshold limits. Hence, the above company would be required to maintain cost accounting records for all its units including the ones located in the special economic zone. However, in view of the provisions of Rule 4(3) (ii) of the Companies (Cost Records and Audit) Rules, 2017, the units located in the special economic zone would be outside the purview of Cost Audit and the company would not be required to include particulars of such units in its Cost Audit Report. The other units of the company located outside the special economic zone would be covered under Cost Audit subject to the prescribed threshold limits
37. Query 2A Company meets the threshold limits for both maintenance of Cost Records and Cost Audit in 2018-19 and, consequently, comes under the purview of the Rules in the year 2019-20. If the turnover of the company gets reduced to lower than the prescribed threshold limit in 2019-20, state whether the Rules relating to Cost Records and Cost Audit will be applicable for the year 2020-21?
38. ResponseRule 3 of the Companies (Cost Records and Audit) Rules, 2014, states that a company engaged in the production of the goods and/or rendering of the services as prescribed, having an overall turnover from all its products and/or services of Rupees thirty five crore or more during the immediately preceding financial year, shall include cost records for such products and/or services in their books of account. Since the threshold limit for applicability of maintenance of Cost Accounting Records is met in 2018-19 (Previous Year), the Cost Records are required to be maintained from 2019-20. Once the maintenance of Cost Records becomes applicable, it would be maintained on a continuous basis in the subsequent years also. Following the same line, Cost Audit will be applicable from 2019-20 and for every year thereafter. So Cost Audit is applicable in 2020-21 also.
39. Appointment of Cost AuditorSection 148 (3) of the Companies Act, 2013 Cost Auditor shall be appointed by the Board of Directors.There is no requirement of any approval from Central Government.
40. Due Date of Appointment of Cost AuditorRule 6(1) of the Companies (Cost Records & Audit) Rules, 2014, Cost Auditor shall be appointed by the Company within one hundred and eighty days of the commencement of every financial year.
41. Intimation of Appointment to the Central GovernmentRule 6(2) of the Companies (Cost Records & Audit) Rules, 2014Company to file notice of such appointment with the Central Government within a period of thirty days of the Board meeting in which such appointment is made or within a period of one hundred and eighty days of the commencement of the financial year, whichever is earlier, Form CRA-2, alongwith the specified fee.
42. Financial Year 2021-22Appointment of Cost Auditor30 days of Board Meeting or 180 days from beginning of year, whichever is earlierApril30 May31 June30 July31 Aug31 Sept27Due date 27th Sept, 2021 180
43. IllustrationsFinancial Year2021-222021-22Due dates for BoDDue dates of uploading at MCACost Auditor Appointment due date - 30 days from appointment by Board of Directors or 180 days from beginning of year27.09.2021within 30 days of BoD meeting or 27.09.2021, which ever is earlier
44. IllustrationsExample 1Due date of Appointment27.09.2021Actual date of Appointment15.06.2021Uploading at MCA18.07.2021Default (Late Fee + Proceedings)Example 2Due date of Appointment27.09.2021Actual date of Appointment27.09.2021Uploading at MCA28.09.2021Default (Late Fee + Proceedings)Example 3Due date of Appointment27.09.2021Actual date of Appointment28.09.2021Default (Proceedings)Uploading at MCA01.10.2021Filing at Normal Fee
45. Due Date of submission of Cost Audit Report by the Cost AuditorRule 6(5) of the Companies (Cost Records & Audit) Rules, 2014, (5) Every cost auditor shall forward his duly signed report to the Board of Directors of the company within a period of one hundred and eighty days from the closure of the financial year to which the report relates and the Board of Directors shall consider and examine such report, particularly any reservation or qualification contained there.
46. Due Date of submission of Cost Audit Report by the Company to the Govt.Rule 6(6) of the Companies (Cost Records & Audit) Rules, 2014Company to submit Cost Audit Report within a period of thirty days from the date of receipt of copy of report from the Cost Auditor.Form CRA-4, alongwith the specified fee.
47. IllustrationsFinancial Year2021-222021-22Due dates for submission to BoDDue dates of uploading at MCA by the CompanySubmission of Cost Audit Report - 180 days from close of the year to the Board of Directors by the Cost Auditor27.09.2022within 30 days of submission by the Cost Auditor to the Board
48. IllustrationsExample 1Due date of Audit Report submission by Cost Auditor 27.09.2022Actual date of Audit Report submission by Cost Auditor27.09.2022In TimeUploading at MCA by the Company27.10.2022In TimeExample 2Due date of Audit Report submission by Cost Auditor 27.09.2022Actual date of Audit Report submission by Cost Auditor23.08.2022Uploading at MCA by the Company25.09.2022Default (Late Fee + Proceedings)Example 3Due date of Audit Report submission by Cost Auditor 27.09.2022Actual date of Audit Report submission by Cost Auditor15.11.2022Default (Proceedings)Uploading at MCA by the Company18.11.2022Filing at Normal Fee
49. Extended due dateDue date of Audit Report submission by Cost Auditor 27.09.2022General Rule of Uploading at MCA by the Companywithin 30 daysAGM due date is 30th September. The Registrar of Companies may allow extension for holding AGM for a period upto 3 months on application & fee by the Company.In such case, the due date for uploading of Cost Audit Report will be as per following clause:The Companies which have got extension of time of holding Annual General Meeting under section 96 (1) of the Companies Act, 2013, may file form CRA-4 within resultant extended period of filing financial statements under section 137 of the Companies Act, 2013
50. Rule 55. Maintenance of records.- Every company under these rules including all units and branches thereof, shall, in respect of each of its financial year commencing on or after the 1st day of April, 2014, maintain cost records in form CRA-1.The cost records referred to in sub-rule (1) shall be maintained on regular basis in such manner asto facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities for every financial year on monthly or quarterly or half-yearly or annual basis.
51. Rule 5(3) The cost records shall be maintained in such manner so as to enable the company to exercise, asfar as possible, control over the various operations and costs to achieve optimum economies in utilisation of resources and these records shall also provide necessary data which is required to be furnished under these rules.
52. CRA-1Forms in which cost records shall be maintained [Pursuant to rule 5(1)] The form CRA-1 prescribes the form in which cost records shall be maintained. The form categorises the requirement of maintaining proper details as per 31 headings. The headings are as follows: (1) Material Cost(2) Employee Cost(3) Utilities
53. CRA-1(4) Direct Expenses(5) Repair and Maintenance(6) Fixed Assets and Depreciation(7) Overheads(8) Administrative Overheads(9) Transportation Cost(10) Royalty and Technical Know-how(11) Research and Development expenses(12) Quality Control Expenses(13) Pollution Control Expenses
54. CRA-1(14) Service Department Expenses(15) Packing Expenses(16) Finance Costs(17) Any other item of Cost(18) Capacity Determination(19) Work-in-progress and finished stock(20) Captive Consumption(21) By-Products and Joint Products(22) Adjustment of Cost Variances(23) Reconciliation of Cost and Financial Accounts
55. CRA-1(24) Related Party Transactions(25) Expenses or Incentives on Exports(26) Production records(27) Sales records(28) Cost Statements(29) Statistical Records(30) Records of Physical Verification(31) Unit of Measurement (UoM).