{"id":40648,"date":"2022-03-01T11:55:04","date_gmt":"2022-03-01T06:25:04","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=40648"},"modified":"2022-03-01T11:56:46","modified_gmt":"2022-03-01T06:26:46","slug":"cost-audit-meaning-applicability-and-provisions","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/","title":{"rendered":"Cost audit: Meaning, Applicability and Provisions"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Cost audit is a pivotal and continuous\nprocess that an organization must execute aptly throughout its life cycle. It\nprimarily deals with the thorough inspection\/validation of the cost records and\nthe different accounts types. The primary goal of cost audit is to keep the tap\non the company&#8217;s cash flow and mitigate errors. This write-up will disclose key\naspects of cost auditing, including the legalities to be followed by\nincorporated companies in India. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Key_Objectives_of_Cost_Auditing\" >Key Objectives of Cost Auditing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Types_of_Cost_Auditing\" >Types of Cost Auditing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Applicability_of_cost_auditing_as_per_Companies_Cost_Records_and_Audit_Rules_2014\" >Applicability of cost auditing\nas per Companies (Cost Records and Audit) Rules, 2014<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Maintenance_of_cost_records_as_per_Companies_Cost_Records_and_Audit_Rules_2014\" >Maintenance of cost records as\nper Companies (Cost Records and Audit) Rules, 2014<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Norms_under_Companies_Cost_Records_and_Audit_Rules_2014\" >Norms under Companies (Cost\nRecords and Audit) Rules, 2014<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Filing_of_CRA_2_form_and_other_norms_around_cost_auditor\" >Filing of CRA 2 form and other\nnorms around cost auditor<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Norms_for_intimating_vacancy_and_filing_of_form_CRA_2_CRA_3_and_CRA_4\" >Norms for intimating vacancy\nand filing of form CRA 2, CRA 3 and CRA 4<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/cost-audit-meaning-applicability-and-provisions\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Key_Objectives_of_Cost_Auditing\"><\/span>Key Objectives of Cost Auditing<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>The cost\naudit intends to pinpoint the undue losses or wastage and ensure that the\ncosting system determines the realistic &amp; accurate cost of production. <\/li><li>The\nprimary goal of cost audit is to ensure that the cost relating to production\nand sales encompass only those factors which are imperative and that those\nfactors are utilized most effectively. <\/li><li>To\ncheck that cost records are accurate <\/li><li>To\nidentify errors in cost account\/records<\/li><li>To\nintroduce the arrangement of internal audit with a focus on costs to minimize\nthe burden on the financial auditor<\/li><li>To\ndetermine that the company have proper cost books and records either required\nby legislation or otherwise as managerial decision<\/li><li>To\ncheck that the fundamental principle of cost accountancy or related provisions\nmentioned therein to implement certain statutory norms are aptly carried out in\nmaintaining cost accounts.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types_of_Cost_Auditing\"><\/span>Types of Cost Auditing<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are different types of cost audit\nprocesses as mentioned below: <\/p>\n\n\n\n<ul><li>Auditing\non behalf of the Indian Government<\/li><li>Cost\naudit on behalf of Assist Management. <\/li><li>Auditing\non behalf of tribunals. <\/li><li>Cost\nAudit for the trade association. <\/li><li>Auditing\nunder the Company&#8217;s Statue <\/li><li>Trade\nbargains and dispute<\/li><li>Cost\nvariation within the industry<\/li><li>Statutory\ncost audit<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Applicability_of_cost_auditing_as_per_Companies_Cost_Records_and_Audit_Rules_2014\"><\/span>Applicability of cost auditing\nas per Companies (Cost Records and Audit) Rules, 2014<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Cost Audit is a legal compulsion for: <\/p>\n\n\n\n<ul><li>Every\ncompany cited in item (A) of rule 3 whose yearly turnover during the\nimmediately preceding FY is Rs 50 crores or more. <\/li><li>Every\ncompany cited in item (A) of rule 3 whose total turnover of individual products\nor services for which cost records are mandated to be administered under rule 3\nis Rs 25 crore or more. <\/li><li>Every\ncompany cited in item (B) of rule 3 whose yearly turnover during the\nimmediately preceding FY is Rs 100 crores or more. <\/li><li>Every\ncompany cited in item (B) of rule 3 whose total turnover of individual products\nor services for which cost records are mandated to be administered under rule 3\nis Rs 35 crore or more. <\/li><\/ul>\n\n\n\n<p><strong><em>Cost auditing is not a mandate for\nfollowing companies falling under rule 3:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Whose\nrevenue in foreign exchange from exporting activities surpass 75 % of its\naggregate revenue; or <\/li><li>Which\nis functional in SEZ; or<\/li><li>Which\nis serving the power sector and generating electricity via Captive Generating\nPlant<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Maintenance_of_cost_records_as_per_Companies_Cost_Records_and_Audit_Rules_2014\"><\/span>Maintenance of cost records as\nper Companies (Cost Records and Audit) Rules, 2014<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>(1) Every company under Companies (Cost Records and Audit) Rules, 2014, regarding its FY commencing on or post the 1st April 2014, maintains cost records in CRA 1 form. <\/li><\/ul>\n\n\n\n<p>Provided that in case of the company cited in s.no. 12 and s.no 24 to 32 of item (B) of rule 3, the requirements under this rule shall be applicable regarding each of its FY commencing on or after the 1st day of April 2015. <\/p>\n\n\n\n<ul><li>The cost records cited in sub-rule (1) shall be maintained regularly in a way as to render estimation of per-unit cost of production or operation cost, sale costs, and margin of each of its products &amp; activities for every FY within prescribed timeline.<\/li><li>The cost records shall be administered in such a way to enable the entity to exercise control over the different operations and costs to ensure optimum economies in resources utilization. These records shall also render relevant data needed to be intimate under these rules. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Norms_under_Companies_Cost_Records_and_Audit_Rules_2014\"><\/span>Norms under Companies (Cost\nRecords and Audit) Rules, 2014<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>1. The category of companies cited in rule 3 and the maximum limits set out in rule 4, shall within 180 days of commencement of FY, appoint a cost auditor.<\/p>\n\n\n\n<p>Provided that prior to such appointment\nis made, the writ permission of the cost auditor to such appointment, and\ncertificate from him\/her as cited in sub-rule (1A), shall be obtained.<\/p>\n\n\n\n<p>2. The cost auditor under sub-rule (1) shall furnish a certificate that<\/p>\n\n\n\n<ul><li>The individual or the company, as the case may be, satisfies the criteria for appointment and thus does not stands ineligible as per <strong>Cost &amp; Works Accountants Act, 1959<\/strong><sup><a href=\"https:\/\/www.indiacode.nic.in\/handle\/123456789\/1385?locale=en\"><strong>[1]<\/strong><\/a><\/sup>(23 of 1959) &amp; the rules cited thereunder; <\/li><li>The individual or the company, as the case may be, meets the norms cited in section 141 of the Act; <\/li><li>The proposed appointment adheres to the limits set out by authority; &amp;<\/li><li>The list of cases against the so appointed cost auditor or audit company pending w.r.t professional matters of conduct, as cited in the certificate, is accurate and true. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Filing_of_CRA_2_form_and_other_norms_around_cost_auditor\"><\/span>Filing of CRA 2 form and other\nnorms around cost auditor<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Every company under sub-rule (1) needs to file form CRA 2 for intimating authority about the <a href=\"https:\/\/corpbiz.io\/learning\/appointment-of-auditor-companies-act-2013\/\"><strong>auditor&#8217;s appointment<\/strong><\/a> within given timelines; <\/li><li>Within 30 days of the board meeting in which decision for the same was approved or; <\/li><li>Within 180 days of the commencement of the FY, whichever is earlier, via form CRA 2 along with the standard fee.<\/li><li>Every appointed cost auditor shall continue to discharge his duties till the expiry of 180 days from the closure of the FY or till he\/she furnishes the cost audit report for the FY for which he\/she has been appointed. <\/li><\/ul>\n\n\n\n<p><em>Provided\nthat the cost auditor under these rules may be terminated from this office\nbefore the expiration of his term, via a board resolution post rendering a\nreasonable chance of being heard to the cost auditor &amp; recording the\nreasons for such matter in writing; <\/em><\/p>\n\n\n\n<p><em>Provided\nfurther that the CRA 2 form to be filed for sharing matters relating to the\nappointment of another cost auditor shall affix the concerned Board Resolution\nto the effect;<\/em><\/p>\n\n\n\n<p><em>Provided\nalso that noting cited under this sub-rule shall hinder the cost auditor&#8217;s\nright to resign from such company&#8217;s office<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Norms_for_intimating_vacancy_and_filing_of_form_CRA_2_CRA_3_and_CRA_4\"><\/span>Norms for intimating vacancy\nand filing of form CRA 2, CRA 3 and CRA 4<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Any\ncasual vacancy for the cost auditor created due to resignation, death, or\nremoval shall be filled by the BODs within 30 days of the occurrence of such\nvacancy &amp; the company shall intimate the authority via CRA 2 form within 30\ndays of such appointment. <\/li><\/ul>\n\n\n\n<ul><li>The\ncost statements, along with other relevant statements to be affixed with the\ncost audit report, shall be authenticated by the BODs before they are signed by\nboard-authorized directors for submission to the cost auditor to report thereon<\/li><\/ul>\n\n\n\n<ul><li>Every\ncost auditor who carries out a cost record audit shall furnish the cost audit\nreport along with his observation, if any, in the form CRA <\/li><\/ul>\n\n\n\n<ul><li>Every\ncost auditor shall share his verified report to the BODs within 180 days from\nthe closure of the FY to which the report relates &amp; the BODs shall\nscrutinize such report, particularly ant reservation cited therein. <\/li><\/ul>\n\n\n\n<ul><li>Within\n30 days from the receipt&#8217;s date of a copy of the audit report, every company\nfalling under said rules shall facilitate the authority with such report in\nform CRA 4 form in prescribed format and fees. <\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Cost auditing renders productive detail to the management relating to regulating production, efficient method of operation, minimizing overhead cost in operation, &amp; reformulating plans for cost accounting. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/register-of-members-under-the-companies-act-2013\/\">Register of Members under the Companies Act, 2013\n<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Cost audit is a pivotal and continuous process that an organization must execute aptly throughout its life cycle. It primarily deals with the thorough inspection\/validation of the cost records and the different accounts types. The primary goal of cost audit is to keep the tap on the company&#8217;s cash flow and mitigate errors. This write-up [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":40652,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[120],"tags":[2151],"acf":{"service_id":"321"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":31450,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/40648"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=40648"}],"version-history":[{"count":11,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/40648\/revisions"}],"predecessor-version":[{"id":40661,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/40648\/revisions\/40661"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/40652"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=40648"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=40648"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=40648"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}