SERVICES

Statutory Cost Audit

We offer Statutory audit services across all industries covered under the new cost audit orders issued by the MCA since, June 2011. The statutory audit of Cost Accounting Records and books is carried out to ascertain its conformity with the applicable Cost Accounting Standards (CAS) issued by the by Institute of Cost Accountants of India, The Generally Accepted Cost accounting Principles GACAP and the requirements of the Companies Act, 1956 in this regard.Our Audit services are geared to transcend the statutory requirements and aid the management decision making process in relation to costing and pricing. This is virtually an Internal Audit assisting in identifying revenue leaks or sub-optimal employment resources. Some of the areas where our audits have been beneficial to the Management(s) are
Cost optimization
Wastage Reduction
Logical identification of Cost Drivers
Understanding the cost impact of various overheads on products & profitability
Indentifying deficiencies in the cost recording system
Transfer Pricing Assessments
Product Re-pricing
Product Mix Decisions
Performance Appraisal
Revised Cost Audit Mechanism
The Ministry of corporate affairs has initiated radical changes in the mechanism of Cost Accounting and Cost Audit. The revised mechanism marks a clear departure from the erstwhile rule based mechanism to a principle based mechanism. As part of this paradigm shift, among others, the Ministry has
Superseded 44 Cost Accounting Records and notified The Companies (Cost Accounting Records) Rules, 2011 and The Companies Cost Accounting Records (6 Industry specific (IS)) Rules. [Please refer CARR 2011, Compliance for more details] (link to the page)
Superseded The Cost Audit Report Rules, 2001 and replaced it with The Companies (Cost Audit Report) Rules, 2011 in exercise of the powers conferred by clause (b) of sub-section (1) of section 642 read with sub-section (4) of section 233B, and sub-section (1) of section 227 of the Companies Act, 1956.
As part of the new regime, the practice of issue of individual cost audit orders to the respective companies selected for each product covered under cost accounting record rules has been done away with. No individual Cost Audit Orders will be issued hence forth.
New industry specific Cost Audit Orders, vide F. No. 52/26/CAB-2010 dated 2nd May 2011, 3rd May, 2011, 30th June, 2011, 24th January, 2012, 6th November, 2012 subject to certain conditions of Net Worth/ Turnover of companies to which any of the Uniform or Industry Specific Cost Accounting Records Rules apply have been issued.
Issued Circulars laying down the new procedure for appointing the Cost Auditors. Cost Accountants to be appointed as Cost Auditor for conducting the audit of cost records by the companies covered by cost audit orders issued under section 233B of the Companies Act, 1956.
 General circular No. 15/2011 regarding appointment of Cost Auditors by Companies
 General circular No. 36/2011 amendment to General Circular No.15/2011
 
Analysis of Cost Audit Orders
We present below a brief analysis of the Cost Audit Orders Notified in terms of Industries Covered and Applicability
A. Orders applicable to Financial Years 2011-12 and 2012-13
SUMMARY OF INDUSTRY WISE AUTOMATIC COST AUDIT ORDERS ISSUED BY MCA
COST AUDIT ORDER NO. F. No. 52/26/CAB-2010

First Notification dated on 02.05.2011 Applicable From 2011-12

Second Notification dated on 30.06.2011 (This was issued in supersession of the Notification dated 3rd May 2011) Applicable From 2011-12

Third Notification dated on 24.01.2012 Applicable From 2012-13
Sl. No. Industries Covered Chapter heading Industries Covered Chapter heading Industries Covered Chapter heading
1 Bulk drugs Ch. 29, 30 Cement Ch. 25,38,68 Jute, cotton, silk, woolen or blended fibers /textiles Chapter 50 to 63
2 Formulations Ch. 30 Tyres and tubes Ch. 40 Edible oil seeds and oils (incl. Vanaspati) Chapter 12 and 15
3 Fertilizers Ch. 31 Steel (incl. Tubes, pipes, and other steel products made out of steel) Ch. 72 & 73 Packaged food products Chapter 2 to 25 (except 5,6,14,23 &24)
4 Sugar Ch. 17 Paper (incl. Board and other articles of paper) Ch. 47 & 48 Organic & inorganic chemicals Chapter 28,29,32,38 & 39
5 Industrial alcohol Ch. 38 Insecticides Ch. 38 Coal & lignite Chapter 27
6 Electricity industry (incl. Wind power) Glass Ch. 70 Mining & metallurgy of ferrous & non-ferrous metals. Chapter 26 and 74 to 83 (except Chapter 76 and 77)
7 Petroleum industry (incl lube oil) Ch. 27 Paints & varnishes Ch. 32 Tractors and other motor vehicles (incl. Automotive components) Chapter 84,85 and 87
8 Telecommunications Aluminium Ch. 76 Plantation products Chapter 8,9,21 and 40
9 Note: Intermediate product, articles, and allied products of above industries defined in any other chapter of Central Excise will also be covered under Cost Audit. Engineering machinery (inc. Electrical and electronic products) Chapter 84 & 85

Subject to following conditions

1

 Aggregate value of net worth on the last day of preceding financial year was more than ` 5 crores.

Aggregate value of the turnover of sales and other activity of all the products exceeds 100 crores in the preceding year.

Aggregate value of the turnover of sales and other activity of all the products exceeds 100 crores in the preceding year.

 

Or

2

Aggregate value of the turnover of sales and other activity of all the products exceeds 20 crores in the preceding year.

Or

Or

Or

3

The debt or equity securities of the company are listed or are in process of getting listed on any of the stock exchanges in India or outside India.

COST AUDITORS TO BE APPOINTED WITHIN 90 DAYS FROM THE COMMENCEMENT OF THE FINANCIAL YEAR.
B. Orders applicable to Financial Year 2013-14 and onwards
COST AUDIT ORDER NO. F. No. 52/26/CAB-2010 dated 06.11.2012
The aforesaid Cost Audit Order was notified consequent to the notification of the Product or Activity Group classification published vide S.O. 1747(E) dated 7th August, 2012 and in supersession of the earlier Orders issued vide even number dated 2nd May 2011, 3rd May 2011, 30th June 2011 and 24th January 2012. The order will be applicable to all the financial years commencing on or after 1st January 2013 (i.e. FY 2013-14 and onwards)The said Order widens the scope of Cost Audit by bringing 23 chapters of CETA which were not covered in earlier orders, within the purview of Cost Audit with effect from 01.01.2013 and simplifies the determination of coverage and applicability by avoiding reference to multiple ordersThe Cost audit under the said Order will be applicable subject fulfillment of the conditions mentioned below
Product /Activity Groups covered by the respective Cost Accounting Records (Industry) rules or specified in Table I of the Order Product /Activity Groups covered specified in Table II of the Order
1 Aggregate value of net worth on the last day of preceding financial year was more than ` 5 crores. Aggregate value of the turnover of sales and other activity of all the products exceeds 100 crores in the preceding year.

 

Or

2

Aggregate value of the turnover of sales and other activity of all the products exceeds 20 crores in the preceding year.

 

Or

Or

3

The debt or equity securities of the company are listed or are in process of getting listed on any of the stock exchanges in India or outside India.

4

COST AUDITORS TO BE APPOINTED WITHIN 90 DAYS FROM THE COMMENCEMENT
In short, Cost Audit, subject to the turnover and/or net worth criterion, is applicable to all companies engaged in production, processing, manufacturing or mining of products/activities (irrespective of whether Central Excise Duty is levied or not), EXCEPT those products/activities falling under the following chapters of CETA:
Chapter
 Description
1
 Live animals
5
 Products of animal origin, not elsewhere specified or included
6
 Vegetable products
43
 Furskins and artificial fur; manufactures thereof
45
 Cork and articles of cork
46
 straw, of esparto or of other plaiting materials; basket-ware and wickerwork
49
 Printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans
66
 Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof
67
 Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair
77
 Reserved for possible future use
93
 Arms and ammunition; parts and accessories thereof
In respect of Product or Activity Groups mentioned in Table-I of the Order corresponding to which no CETA Chapter Headings are applicable; Cost audit will be applicable as long as product/ activity groups are covered by the respective Cost Accounting Record (Industry) Rules.In case of all such activities that are covered under the respective Cost Accounting (Industry) Records Rules and therefore covered under cost audit but for which no Product or Activity Group code has been indicated in Table-I of the Order above, companies should use the appropriate Product or Activity Group code as given in the notification issued vide S.O. 1747(E) dated 7th August, 2012.
Compliances and Penalties
Every company to which CAR is applicable shall appoint a cost auditor and file an application with Central Government seeking prior approval for such appointment within 90 days of commencement of every financial year.
Cost auditor shall forward the report in the format prescribed in the CAR 2011 to the Central Government and the Company, within 180 days from the close of the financial year to which the report relates
Any contravention of the provisions of CAR, 2011 will render the company and every officer in default liable for punishment as provided under section 642(2) read with subsections (5) and (7) of section 209 and sub-section (11) of section 233B of Companies Act, 1956.Section 642 (2) provides that a contravention of any rule made under subsection (1) shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues.Section 209 (5) and (7) provides for that every officer of the company who is in default, shall be liable, in respect of each offence, to be punished with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupeesSection 233 B (11) provides that in case of a default in complying with the provisions of the section, the company shall be liable to be punished with fine which may extend to fifty thousand rupees and every officer of the company who is in default, shall be liable to be punished with imprisonment for a term which may extend to three years, or with fine which may extend to fifty thousand rupees, or with both.If default is made by the cost accountant in complying with the provisions of these rules, he shall be punishable with fine, which may extend to five thousand rupees.