Cost Records and Cost Audit Applicability

Section 148 of the Companies Act, 2013 contains provisions relating to the cost records and cost audit
applicability under the Companies Act. The salient feature of section 148 are summarized hereunder –
 Section 148 (1) empowers the Central Government to direct the companies specified in the production
of goods or provisions of service to include particulars relating to utilization of material or labour or other
items of cost in the books of accounts of the company;
 List of specified companies, which needs to maintain the cost records, is provided under Table A and
Table B of rule 3 of the Companies (Cost Records and Audit) Rules, 2014;
 Section 148 (2) empowers the Central Government to direct, based on the net worth or turnover of the
company, audit of cost records of the specified class of companies;
 Rule 4 of the Companies (Cost Records and Audit) Rules, 2014 contains the provisions relating to the
companies which are liable to get their cost records audited;
 Cost audit shall be conducted by the cost accountant who is appointed by the Board;
 In case of any default on the part of the company, it shall be punishable with the fine of an amount not
less than INR 25,000, however, such fine cannot be more than INR 5 Lakhs. Further, every officer, in
default, of the company shall be punishable with imprisonment for a term up to 1 year or with the fine
not less than INR 10,000, however, the same cannot be more than INR 1,00,000;
 In case the cost auditor is in default, he shall be punishable in the manner as provided under section
147 (2) to section 147 (4).
Meaning of the Term ‘Cost Records’
The definition of the word ‘cost records’ has been provided under rule 2 (e) of the Companies (Cost Records
and Audit) Rules, 2014 which means books of account relating to the utilization of materials, labour and other
items of cost as applicable to the production of the goods or provision of services as provided in section 148 of
the Act and the Companies (Cost Records and Audit) Rules.
Applicability of Cost Records
Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 contains two table namely Table A – regulated
sectors and Table B – Non-regulated sectors.
Cost records need to be included in the books of accounts of the companies being engaged in the production
of goods or provision of service as covered under the table A or Table B and the total turnover from all its
production or service in more than INR 35 crore during the preceding financial year.
In a nutshell, cost records are mandatory in the case following conditions are satisfied –
1. The company is engaged in manufacturing goods or provision of services which are listed in Table A or
Table B; and
2. Total aggregate turnover of the company from all its production or service is more than INR 35 Crore in
the preceding financial year.
Applicability of Cost Audit
Cost audit applicability provisions are contained under rule 4 of the Companies (Cost Records and Audit)
Rules, 2014. According to the said rule 4, the cost audit is applicable in the following situation –
  Table A specified goods/services –
o Overall annual total turnover of the company from all the products/services is INR 50 Crore or
more; and
o Aggregate turnover from the individual product/service for which cost records are required to be
maintained is INR 25 Crore or more.
 Table B specified goods/services –
o Overall annual total turnover of all the products/services should be INR 100 Crore or more; and
o Aggregate turnover from the individual product/service for which cost records are required to be
maintained should be INR 35 Crore or more.
It must be noted that for the purpose of examination of applicability of cost audit the immediately preceding
financial year turnover is to be considered.
Non-Applicability Of Cost Audit Requirement
The companies which are covered under rule 3 are not required to get their cost records audited in case of the
following situation –
 The company’s export revenue exceeds 75% of its total revenue. The export revenue needs to be in
foreign exchange; or
 The company which is operating from the special economic zone;
 The company which is engaged in the generation of electricity for captive consumption through Captive
Generating Plant.
Companies (Cost Records and Audit) Rules, 2014
4. Applicability for cost audit.- (1) Every company specified in the item (A) of rule 3 shall be required to get
its cost records audited in accordance with these rules if the overall annual turnover of the company from all its
products and services during the immediately preceding financial year is rupees fifty crore or more and the
aggregate turnover of the individual product or products or service or services for which cost records are
required to be maintained under rule 3 is rupees twenty five crore or more
(2) Every company specified in item (B) of rule 3 shall get its cost records audited in accordance with these
rules if the overall annual turnover of the company from all its products and services during the immediately
preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual
product or products or service or services for which cost records are required to be maintained under rule 3 is
rupees thirty five crore or more.
(3) The requirement for cost audit under these rules shall not apply to a company which is covered in rule 3,
and-
(i) Whose revenue from exports, in foreign exchange, exceeds seventy five percent of its total revenue; or
(ii) which is operating from a special economic zone.
(iii) which is engaged in generation of electricity for captive consumption through Captive Generating PIant. For
this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the
Electricity Rules, 2005″;