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Cost Records And Cost Audit Of Companies.

Courtesy/By: Prathamesh R. Gothe | 2021-04-22 03:34     Views : 51

Cost records and Cost Audit of Companies.

Cost is an inevitable element for every business. A business has to bear certain common costs irrespective of the goods or services in which it deals. They are - the costs incurred on raw materials, inputs for production, labour, and other costs directly attached with producing the goods or rendering services provided by such business entity. Without considering the cost factor, no business can measure the amount of profit or loss happening to it. Almost every financial decision of a business is driven by the costs that it has or may have to bear in the future.

In a company form of business, the magnitude of costs borne by the company is comparatively higher. The larger the company’s size, the more careful it has to be towards its costs so as to sustain or increase its profitability. It is the duty of every such company as directed by law, to maintain systematic records of its costs. Now whether such cost records have been accounted truly and fairly shall be discovered by way of an audit of such records. Thus, a cost audit is a process of checking the cost records of companies.

To know about cost audit in further detail, we shall have regard to the applicable legal provisions as given under the Indian Company Law (i.e Companies Act 2013)

 

Cost Audit and its legal provisions:

1) Every such class of company, engaged in the production of the prescribed goods or services as prescribed by law, shall on the order of the Central Government be required to include the cost records of material, labor, and other prescribed items in its books of accounts.

Some examples of the above class of companies are the companies engaged in the business of telecommunication, generation, supply, and transmission of electricity, production of cement, minerals, arms, and ammunition, etc, and having an overall turnover of 35 crores or more in the previous financial year.

An exhaustive list of the prescribed class of companies has been provided under Rule 3 of the Companies (Cost Records and Audit) Rules of 2014.    

In the case of certain companies engaged in such business sectors that are regulated, then the Central Government before ordering the maintenance of cost records shall consult with the regulatory bodies which govern that particular sector.

2) Also, apart from the above-prescribed class of companies, there are certain classes of companies specifically prescribed by law whose cost records need to be audited on the order of the Central Government to that effect.

3) The cost audit of the prescribed class of companies shall be conducted by a qualified cost accountant.

The appointment of the cost auditor shall be made by the company’s Board of Directors. His remuneration shall be recommended by the company’s audit committee which shall be considered and approved by the Board of Directors and shareholders of the company.

If the company is not required to have an audit committee, such a cost auditor shall be appointed by the Board of Directors and his remuneration shall be ratified by the company’s shareholders.

4) It must be noted that a statutory auditor of the company cannot conduct the cost audit of the same company.

5) The cost audit shall be conducted in such a manner that the cost auditor shall comply with the necessary cost audit standards as prescribed by the Institute of Cost Accountants of India.

6) Companies required to get their cost audit done shall do so in addition to the statutory audit.  

7) On completion of the cost audit, the cost auditor shall communicate his opinions on the cost records by preparing a cost audit report.

The cost audit report shall thus be filed by the concerned companies with the Central Government within 30 days of receiving a copy of the cost audit report from the cost auditor.

The company shall also provide sufficient explanation on the remarks made by the cost auditor in his audit report.

In case any further explanation is required by the Central Government, then such explanation shall be submitted by the companies within such time as instructed by the Central Government.

8) In case of failure to comply with the above provisions,

- the company shall be liable to a minimum fine of 25,000 which shall not be more than 5 lakhs.

- every officer in default of the company shall be liable to a fine of not less than 10,000 which may extend to 1 lakh.

- the cost auditor shall be liable to a minimum fine of 25,000 and a maximum fine of 5 lakhs or 4 times of the auditor’s remuneration, whichever is lesser among the two.

Additionally,[i] if the cost auditor is involved in violating the above provisions intending to deceive the creditors and shareholders of the company or the tax authorities, he shall further be punishable with the imprisonment of such a number of years and fine of such amount as may be prescribed by law.    

 

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise. 

Courtesy/By: Prathamesh R. Gothe | 2021-04-22 03:34

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