Understanding Cost Audit Requirements Under Section 148 of Companies Act, 2013

Understanding Cost Audit Under Section 148 of the Companies Act, 2013

Cost audit, as mandated by Section 148 of the Companies Act, 2013, requires certain companies to maintain thorough cost records and undergo an audit conducted by a practicing cost accountant. This regulation targets firms across both regulated and non-regulated sectors, determined by their turnover.

Applicability Criteria

• Regulated Sector: Companies need to maintain cost records if their turnover surpasses ₹50 crores.

  • Examples of regulated sectors include:
    • Telecommunications
    • Petroleum products
    • Electricity
    • Drugs and pharmaceuticals
    • Fertilizers
    • Sugar
    • Railways (goods/passenger)

• Non-Regulated Sector: The threshold is set at ₹100 crores for these companies.

  • Examples of non-regulated sectors include:
    • Automobiles
    • Cement
    • Chemicals
    • Construction
    • Textiles
    • Glass
    • Metals (aluminium, copper, zinc, steel, etc.)
    • Paper
    • Mining and minerals

Exemptions from Cost Audit

Certain entities are exempt from the requirements of cost audits under these rules, including:

• Micro, Small, and Medium Enterprises (MSMEs): These companies are exempt based on the turnover criteria outlined in Section 7(9) of the MSME Development Act, 2006.
• Sector-Specific Exemptions: Companies engaged in banking, insurance, and non-banking financial companies (NBFCs) do not require a cost audit due to existing comprehensive regulatory oversight.
• Export-Dependent Companies: Those with over 75% of their revenue coming from exports (in foreign exchange) or businesses operating in Special Economic Zones (SEZs) are also exempt.
• Captive Electricity Generation: Companies producing electricity for their own use are not subject to these cost audit requirements as their operations are typically smaller and internally focused.

Cost Audit Process

The audit process is structured through specific forms, which include:

1. CRA-1: Cost Records
2. CRA-2: Notice of Appointment of Cost Auditor
3. CRA-3: Cost Audit Report
4. CRA-4: Filing of Cost Audit Report with the Central Government
5. CRA-5: Form for Change in Cost Auditor

Compliance Obligations

To comply with the cost audit regulations, companies must:

• Maintain cost records in Form CRA-1 for each financial year.
• Appoint a cost auditor within 180 days from the start of the financial year using Form CRA-4.
• Submit the completed audit report (Form CRA-3) to the Central Government.

Conclusion

Cost audits are crucial for ensuring financial accuracy and accountability for companies falling under the specified sectors. By adhering to the requirements stated in Section 148 of the Companies Act, 2013, organizations can align themselves with regulatory standards while gaining insights into their cost management practices.