COST AUDIT AND COST AUDITOR
ROLE
OF COST
AUDIT:
Government
needs authentic and reliable data of cost for various purposes like price
fixation of controlled commodities. The information is also useful in various
decisions like fixation of duty drawback, export incentives; amount of excise
duty the product can bear, deciding whether special incentives are required to
a particular industry etc.
MAINTENANCE OF COST RECORDS:
Realizing
the importance of proper cost record and control, section 148(1) provides that
Central Government can direct that particulars relating to the utilization of
material or labour or to other item of cost as may be prescribed shall also be
included in the books of account kept by that class of Companies.
COST
AUDITOR:
Who can be appoint as
cost auditor:
·
A cost Accountant in practice or a firm
of cost accountants can be appointed as a cost auditor.
·
A cost accountant holding certificate of
practiced on part time basis is not entitled to conduct cost audit. Thus, only
a cost accountant in whole-time practice can conduct cost audit.
Who can’t appoint as
cost auditor:
§ Statutory
Auditor appointed under Section 139 of the Act can’t be appointed as Cost
Auditor of the Company.
Process for
appointment of Cost Auditor:
§ If Company has Audit
Committee: Appointment and
remuneration will be recommended by audit committee and approved by Board.
§ If Company doesn’t
have Audit Committee: If there is not audit committee,
appointment and remuneration fixation will be done by Board. Later, this
remuneration shall be ratified by Shareholders.
Information for
appointment Cost Auditor:
§ Information to Cost
Auditor: Every Company which requires appointment of Cost
Auditor shall inform the Cost auditor of his appointment within 30 days of
Board Meeting in which resolution for appointment has passed.
§ Information to ROC: Company will file form
CRA-2 with ROC:
-
Within 30 days of passing of Resolution in Board Meeting,
OR
-
Within 180 days of the commencement of financial year.
Whichever is earlier.
Appointment of Cost
Auditor in case of Casual Vacancy:
§ Any
casual vacancy in the office of a cost auditor whether due to resignation,
death or removal, shall be filed by the Board of Directors within 30 days of
such Vacancy,.
§
Company will file form CRA-2 with ROC
within said 30 days
Period by which
appointment to be made-Rule 6(1)
The concerned companies shall appoint the Cost
Auditor within 180 days of the commencement of every financial year.
Limit of number of
Cost Auditor:
Limit
of number of audit per person, as are applicable to Statutory Auditors are
applicable to Cost Auditors.
Qualifications,
Rights, Duties and obligations of Cost Auditor:
The qualification,
disqualification, rights, duties and obligations of Cost Auditor/firm of Cost
Auditor are same as applicable to Statutory Auditors.
Note:
§ The
auditor conducting the cost audit shall comply with the cost auditing standards
COST
AUDIT:
Applicability of Cost
Audit:
Out
of the companies required to maintain cost records as per Rule 3, the following
companies shall have its records audited annually:
Item A
-
Every company having annual turnover from all its products and services
in the immediately preceding financial year of Rs. 50 Crore or more and
- The aggregate turnover of the individual
product or products or service or services of Rs. 25 Crore or more.
Item B
- Every company having annual turnover from
all its products and services in the immediately preceding financial year of
Rs. 100 Crore or more and
- The aggregate turnover of the individual
product or products or service or services of Rs. 35 Crore or more.
Inapplicability of
Cost Audit-Rule 4(3)
The
requirement of Cost Audit shall not apply to a company covered by Rule 3 in the
following
circumstances:-
§ Whole
revenue from exports, in foreign exchange, exceeds 75% of its total revenue; or
§ Which
is operating from a special economic zone?
Nature of cost records
to be kept-Rule 5
§ Every
company, which comes under the Rules, including all units and branches, shall,
in each financial year from 1-4-2014, maintain cost records in Form CRA-1.
§ In
the case of company covered in serial number 12 (coffee and tea) and serial
numbers 24 to 32 of item B of Rule 3, the requirement of Rule 5 shall apply in
respect of each of its financial year on or after 1-4-2015.
§ The above cost records shall be maintained on
regular basis so as to help calculation of per unit cost of production or cost
of operations, cost of sales and margin for each product and activities for
every financial year on monthly, quarterly, half-yearly or annual basis.
§ The
cost records shall be maintained in such manner as to enable the company to
have control over various operations and costs to achieve optimum economies in
utilization.
Requirements to be
complied with by a company to which Cost Audit is applicable-Rule 6
Pursuant to the rules 3
and 4, it is clear which are the companies to whom Cost Audit shall be
applicable in every financial year and therefore there is no need for the
Central Government to issue order directing Cost Audit.
Cost Audit Report-Rule
6(4) as amended on 31-12-2014
The Cost Auditor shall
submit the Cost Audit Report along with his or its reservations or
qualifications, if any, in Form CRA-3
to the Board of Directors of the company within a period of 180 days from the
closure of the financial year.
Copy of the Cost Audit
Report to be furnished to the Central Government:
Every Company shall forward a copy of Audit Report
to the Registrar of Companies within 30 days of receipt of the Audit Report
along with the full information and explanation on every qualification or
reservation, if any, in Form CRA-4 with
fees specified in Companies (Registration Offices and Fees) Rules, 2014.
Duty of the Cost
Auditor to report on commission of offence found during the Audit-Rule 6(7)
In terms of Section 143(12) of the Act, if the Cost
Auditor, in the course of his duties as Cost Auditor, has reason to believe
that an offence involving fraud has been or is being committed against the
Company by its officers or employees, he shall immediately report the manner to
the Central Government.
Punishment on contravention of
this Section:
To the company:
The company shall be
punishable with a fine which shall not be less than Rs. 250,00.00 but which may
extend to Rs. 5,00,000.00. Every officer of the company who is in default shall
be punishable with imprisonment for a term which may extend to 1 year or fine
which shall not be less than Rs. 10,000.00 but which may extend to Rs.
1,00,000.00 or with both.
To the auditor
He shall be punishable with a
fine which shall not be less than Rs. 25000.00 but which may extend to Rs.
5,00,000.00. However if the auditor has contravened such provisions willfully
with the intention to deceive the company or its shareholders or creditors or
tax authorities , he shall be punishable with imprisonment for a term which may
extend to one year and with fine which shall not be less than Rs. 1,00,000.00
but which may extend to Rs. 25,00,000.00.
In case the criminal
liability of an audit firm, the liability other than fine shall devolve only on
the concerned partner who acted in fraudulent manner.
APPLICATION OF COST RECORD:
The class of Companies, including Foreign
Companies defined in clasue (42) of Section 2 of the Act, engaged in the
production of the goods or providing services, specified in the Table below,
having an overall turnover from all its products and services of Rupees 50
Crore or more during the immediately preceding financial year, shall include
cost records for such products or services in their books of account, namely:-
(A)
Regulated Sectors
Sl. No.
|
Industry/Sector/Product/Service
|
Central Excise Tariff Act(CETA)
Heading(wherever applicable)
|
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);
|
Not
applicable
|
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 (referred to in the Electricity
Rules, 2005)
|
-
|
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 2715
|
4.
|
Drugs
and pharmaceuticals;
|
2901
to 2942,3001 to 3006
|
5.
|
Fertilisers;
|
3102
to 3105
|
6.
|
Sugar
and industrial alcohol;
|
1701;1703;2207
|
(B)
Non-Regulated Sectors
Sl. No.
|
Industry/Sector/Product/Service
|
Central Excise Tariff Act(CETA)
Heading(wherever applicable)
|
1.
|
Machinery
and mechanical appliances used in defence, space and atomic
energy sectors excluding any ancillary item or items;
Explanation.
– For the purposes 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 propellers;
|
8411
|
3.
|
Arms
and ammunitions;
|
3601 to
3603;9301 to 9306
|
4.
|
Propellant powders; Prepared explosives
(other than propellant powders);
safety fuses; detonating fuses; percussion or detonating caps;
igniters; electric detonators;
|
3601 to 3603
|
5.
|
Radar
apparatus, radio navigational aid
apparatus and radio remote control apparatus;
|
8526
|
6.
|
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;
|
8710
|
7.
|
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 III of the Major Port
Trusts Act, 1963(38 of 1963);
|
Not applicable
|
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);
|
Not applicable
|
9.
|
Steel;
|
7201 to
7229; 7301 to 7326
|
10.
|
Roads and
other infrastructure projects corresponding to para
No. (1) (a) as specified in Schedule VI of the Companies Act, 2013;
|
Not applicable
|
11.
|
Rubber
and allied products being regulated by the Rubber Board constituted under the
Rubber Act, 1947 (XXIV of 1947).
|
4001 to
4017
|
12.
|
Coffee and tea;
|
0901 to 0902
|
13.
|
Railway
or tramway locomotives, rolling stock, railway or tramway
fixtures and fittings, mechanical (including
electro mechanical) traffic signaling equipment’s of all kinds;
|
8601 to
8608
|
14.
|
Cement;
|
2523; 6811 to 6812
|
15.
|
Ores
and Mineral products;
|
2502 to
2522; 2524 to 2526; 2528 to 2530; 2601 to 2617
|
16.
|
Mineral fuels (other than Petroleum),
mineral oils etc.;
|
2701 to 2708
|
17.
|
Base
metals;
|
7401 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
|
18.
|
Inorganic chemicals,
organic or inorganic compounds of precious metals, rare-earth
metals of radioactive elements or isotopes, and Organic Chemicals;
|
2801 to 2853; 2901 to 2942; 3801
to 3807; 3402 to 3403; 3809 to 3824
|
19.
|
Jute
and Jute Products;
|
5303,
5310
|
20.
|
Edible Oil
|
1507 to 1518
|
21.
|
Construction
industry as per pars No. (5) (a) as specified in Schedule VI of the Companies
Act, 2013 (18 of 2013)
|
Not
applicable
|
22.
|
Health services, namely
functioning as or running hospitals, diagnostic centres, clinical centres or
test laboratories;
|
Not applicable
|
23.
|
Education
services, other than such similar services falling under philanthropy or as
part of social spend which do not form part of any business.
|
Not
applicable
|
24.
|
Milk Powder ;
|
0402
|
25.
|
Insecticides;
|
3808
|
26.
|
Plastics and polymers;
|
3901 to 3914; 3916 to 3921; 3925
|
27.
|
Tyres
and tubes
|
4011 to
4013
|
28.
|
Paper;
|
4801 to 4802
|
29.
|
Textiles;
|
5004 to
5007; 5106 to 5113;5205 to 5212;5304;5310;5401 to 5408;5501 to 5516
|
30.
|
Glass;
|
7003 to 7008;7011;7016
|
31.
|
Other
machinery
|
8403 to
8487
|
32.
|
Electricals or electronic machinery;
|
8501 to 8507;8511 to 8512;8514 to
8515;8517;8525 to 8536;8538 to 8547
|
33.
|
Production,
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
|
9018 to
9022
|
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