Cost Records & Cost Audit Rules

A Comparison between
2011 & 2014
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Breaking News
MCA has formed Expert Committee which will submit
Report within three months

expert committee

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Snapshot

Preamble
Applicability
Maintenance of Records
Cost Audit
EXCLUSIONS from DISCUSSION
Why the change
Who is responsible
What will happen to members and students
How to oppose/fight back
How do I get refund of 23C Filing Fee

Strictly Confidential. For private circulation only

Preamble

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As we are all aware, Cost Records & Cost Audit were

introduced in mid 60s
Over the years, 44 industries were in ambit
In 2008, an Expert Group constituted recommended
widespread applicability of Cost Records & Cost Audit
In 2011, these recommendations were implemented &
Cost Accounting & Cost Audit Rules were revised covering
most industries in purview of Cost Compliance
Progressively Cost Audit was ordered for many of these
Most importantly, these also addressed industries
concern of confidentiality

Strictly Confidential. For private circulation only

2014
Draft Rules were issued in November, 2013
These combined Cost Accounting & Cost Audit Rules
into one
New Cost Accounting & Cost Audit Rules issued by
MCA on 30th June, 2014 now gazzetted
Applicable from FY commencing on or after 1st
April, 2014
Cost Compliance Report abolished

Strictly Confidential. For private circulation only

Applicability

Strictly Confidential. For private circulation only

Cost Records -2011

All companies including foreign companies (u/s 591 of
Companies Act) from FY 2011-12 which are engaged in:
-

Production or
Processing or
Manufacturing or
Mining activities

AND
- Net worth for preceding year exceeds INR 5 crore or
- Turnover for preceding year exceeds INR 20 crore or
- Debt or equity is listed or in process of listing on any stock
exchange

Unless excluded, CCARR compliance is mandatory even if cost

audit is applicable, i.e. Need to maintain records as per new
CCARR & also file Compliance Report with MCA
Strictly Confidential. For private circulation only

Exclusions - 2011
Company which is a body corporate covered under any special Act
(e.g. Banking & Insurance not covered)
As per clarification by MCA:
- Wholesale or Retail trading activities
- Banking, Financial, Leasing, Investment, Insurance
- Education, Healthcare, Tourism, Travel, Hospitality, Recreation
- Transport services, Business/Professional Consultancy
- IT & IT Enabled Schemes, R & D, postal/courier services, etc
Companies engaged solely in job work operations or contracting/
sub-contracting activities
Ancillary products/activities where total turnover from the sale of
each such ancillary products/activities does not exceed lower of
- 2% of total turnover, or
- Rs. 20 crores
Strictly Confidential. For private circulation only

Cost Audit - 2011

MCA issued 3 Cost Audit Orders:
2nd May
3rd May as amended on 30th June
24th January, 2012

These were superseded by order of 6th November, 2012. This

Order was well structured and clearly spelt out which product
/activity were covered
The threshold limits were Rs 100 cr turnover, except for:
-

Bulk Drugs & Formulations since replaced by Pharmaceutical Rules

Fertilizers
Sugar & Industrial Alcohol since replaced by Sugar Rules
Electricity Industry
Petroleum Industry
Telecommunications

These had Rs 20 cr threshold

Strictly Confidential. For private circulation only

Applicability - 2014
All companies including foreign companies (u/s 42 of
Section 2 of Companies Act, 2013) will be required to
include Cost Records in their books of accounts if they are
covered under these rules
Category

Description

Strategic Sectors

Industry Regulated by a Sectoral Regulator or a Ministry or

Department of Central Government

Areas involving Public Interest

Engaged in Production, import and supply or trading of

certain medical devices

Strictly Confidential. For private circulation only

Applicability
A - Companies Engaged in the Production
of following goods in Strategic Sectors

Strictly Confidential. For private circulation only

Applicability
A Companies Engaged in the Production of following
goods in Strategic Sectors
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
turbo jets and turbo propellers;
arms and ammunitions;
propellant powders; prepared explosives, (other than propellant
powders); safety fuses; detonating fuses; percussion or
detonating caps; igniters; electric detonators;
Strictly Confidential. For private circulation only

Applicability
radar apparatus, radio navigational aid apparatus and radio
remote control apparatus;
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 90%
or more by the Government or Government Agencies;

Strictly Confidential. For private circulation only

Applicability
Net worth or Turnover Criteria
Particulars (Any one)
Net worth of the
Company or

Cost Records

Cost Audit

INR 500 crores or more

Turnover

Note Turnover and net worth for which year to be

considered has not been defined

Strictly Confidential. For private circulation only

Applicability
B - Companies Engaged in an Industry
regulated by a Sectoral Regulator or a
Ministry or Department of Central
Government

Strictly Confidential. For private circulation only

Applicability
B Companies Engaged in an Industry regulated by a
Sectoral Regulator or a Ministry or Department of
Central Government
Note Here the Rules only specify Companies engaged in the
Industry and dont mention Manufacturing/Production
Port services of stevedoring, pilotage, hauling, mooring, remooring, 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 111 of the
Major Port Trusts Act, 1963(38 of 1963);
Aeronautical services of air traffic management, aircraft
operations, ground safety services, ground handling, cargo
facilities and supplying fuel rendered by airports and regulated
Strictly Confidential. For private circulation only

Applicability
by the Airports Economic Regulatory Authority under the
Airports Economic Regulatory Authority of India Act, 2008 (27
of 2008);
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);
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 (as defined under the Electricity Rules 2005);
Strictly Confidential. For private circulation only

Applicability

Roads and other infrastructure projects;

Drugs and Pharmaceuticals;
Fertilisers;
Sugar and industrial alcohol;
Petroleum products regulated by the Petroleum and Natural Gas
Regulatory Board under the Petroleum and Natural Gas
Regulatory Board Act, 2006(19 of 2006);
Rubber and allied products being regulated by the Rubber
Board.

Strictly Confidential. For private circulation only

Applicability
Net worth or Turnover Criteria
Multi Product /
Multi Service
Company

Particulars (Any one)

Cost Records

Cost Audit

Turnover (from such

specific product or such
specific service)

INR 50 crores
or more

INR 100
crores or
more

INR 150
crores or
more

INR 500
crores or
more

INR 25 crores
or more

INR 100
crores or
more

Net worth of the

Company or

One Specific
Product / Service
(Net worth or
Turnover
Turnover)

Note Turnover and net worth for which year to be

considered has not been defined
Strictly Confidential. For private circulation only

Applicability
C - Companies operating in areas involving
public interest

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Applicability
C Companies operating in areas involving public
interest

Note Public interest has not been defined

Note Here the Rules only specify Companies engaged in the
Industry and dont give mention to Manufacturing activity
Railway or tramway locomotives, rolling stock, railway or
tramway fixtures and fittings, mechanical (including electro
mechanical) traffic signalling equipments of all kind;
Mineral products including cement;
Ores;
Mineral fuels (other than Petroleum), mineral oils etc.;
Base metals;

Strictly Confidential. For private circulation only

Applicability
Inorganic chemicals, organic or inorganic compounds of
precious metals, rare-earth metals of radioactive elements or
isotopes, and Organic Chemicals;
Jute and Jute Products;
Edible Oil under Administrative Price Mechanism;
Construction Industry;
Companies engaged in health services viz. functioning as or
running hospitals, diagnostic centres, clinical centres or test
laboratories;
Companies engaged in education services, other than such
similar services falling under philanthropy or as part of social
spend which do not form part of any business.

Strictly Confidential. For private circulation only

Applicability
Net worth or Turnover Criteria
Multi Product /
Multi Service
Company

Particulars (Any one)

Cost Records

Cost Audit

Turnover (from such

specific product or such
specific service)

INR 50 crores
or more

INR 100
crores or
more

INR 150
crores or
more

INR 500
crores or
more

INR 25 crores
or more

INR 100
crores or
more

Net worth of the

Company or

One Specific
Product / Service
(Net worth or
Turnover
Turnover)

Note Turnover and net worth for which year to be

considered has not been defined
Strictly Confidential. For private circulation only

Applicability
D - Companies (including foreign
companies other than those having only
liaison offices) engaged in the production,
import and supply or trading of following
medical devices

Strictly Confidential. For private circulation only

Applicability
D Companies (including foreign companies other
than those having only liaison offices) engaged in the
production, import and supply or TRADING of
following medical devices:
Cardiac Stents, Drug Eluting Stents, Catheters, Intra Ocular
Lenses, Bone Cements, Heart Valves, Orthopaedic Implants,
Internal Prosthetic Replacements, Scalp Vein Set, Deep Brain
Stimulator, Ventricular peripheral Shud, Spinal Implants,
Automatic Impalpable Cardiac Deflobillator, Pacemaker
(temporary and permanent), patent ductus arteriosus, atrial
septal defect and ventricular septal defect closure device,
Cardiac Re-synchronize Therapy, Urethra Spinicture Devices
Sling male or female, Prostate occlusion device, Urethral Stents
Strictly Confidential. For private circulation only

Applicability
Net worth or Turnover Criteria
Multi Product ,
any product or
device

Particulars (Any one)

Cost Records

Turnover (from such

specific product or such
specific service)

INR 10 crores or more or one

third of turnover whichever is
less

One Specific
Net worth of the
Product / Service Company or
(Net worth or
Turnover
Turnover)

Cost Audit

INR 150 crores or more

INR 25 crores or more

Note Turnover and net worth for which year to be

considered has not been defined
Strictly Confidential. For private circulation only

Applicability
Should we go by Heading of each chapter and consider the
industries specified therein as illustrative? Or,
Is Industries list exhaustive and Headings do not carry
significance? In some categories ENGAGED / OPERATING are
used & in some PRODUCTION. Do the former include
TRADING?
How to interprete industry names? Would Steel Industry mean
only Primary Steel, or Secondary Steel from EAF route, Rolling
Mills, Products made from Steel?
The applicability is linked with Networth (for the Company) or
Turnover from Product or Service

What is Product or Service is not defined. As per ppt

submitted to FM, in case of Pharmaceuticals, various
dosage forms, such as Tablets, Capsules, Syrups, etc have
been defined as products.
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Applicability
If this were the case, the scope and applicability would to a
handful of companies.
- Construction company may define each apartment as a
product
- Pharma company may define each formulation (corcin,
digene) and each pack size as also variant as a product
- School may define std. 1, 2, 3 etc as products
- Hospital may define each type of surgery as products
MCA has not linked Products to Excise/ST codes as in the
past
Utmost care needs to be taken while defining PRODUCT

Strictly Confidential. For private circulation only

Applicability
2011 Rules had a list of Products & Activities excluded
from Cost Records/Audit
2014 Rules have named Products & Industries covered for
Cost Records/Audit.
However, it is not clear what is meant by these
Also , how to calculate threshold Turnover is not defined

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Maintenance of Records

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Maintenance
Maintenance of Records
Every Company covered including units and branches shall
maintain cost records in Form CRA 1
This is not a form, it is a narration about Cost Records
There is no mention of compliance with Cost Accounting
Standards or GACAP. However, as per Institute guidelines, these
need to be adhered to
Company needs to prepare cost statements quarterly and
annually

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Maintenance
Cost Records:
To be maintained on regular basis
To facilitate calculation of per unit cost of production /
operation, cost of sales and margin
For each products and activities
For every Financial Year on monthly or quarterly or halfyearly or annual basis
Cost Records to enable:
Control over operations and costs
Economies in utilization of resources
Provide necessary data required to be furnished under these
rules
Strictly Confidential. For private circulation only

Cost Audit

Strictly Confidential. For private circulation only

Cost Audit -2011

BoD needed to appoint Cost Auditor & file Form 23C with
MCA within 90 days of commencement of Accounting Year
MCA would approve the appointment within 30days
thereafter
Cost Auditor needed to file Form 23D within 30 days
accepting the appointment
Cost Audit Report & Annexure thereto were to be filed with
MCA within 180 from y/e in XBRL format
The Annexure to CAR needed to be approved by BoD
Cost Auditor was to give Performance Appraisal Report to
BoD
Confidential data as also suggestions and Performance
Review were not uploaded with MCA
Strictly Confidential. For private circulation only

Annexure to CAR-2011
PARA
1
2
3
4
5
6
7
8
9
10
11

PARTICULARS

DATA TO BE GIVEN FOR

General Information
Cost Accounting Policy
Product Group Details
Quantitative Information
Abridged Cost Statement
Operating Ratio Analysis
Profit Reconciliation
Value Addition
Financial Position & Ratio Analysis
Related Party Transactions
Reconciliation of Indirect Taxes

1 yr
1 yr
1 yr
2 yr
2 yr
2 yr
2 yr
2 yr
2 yr
1 yr
1 yr

Strictly Confidential. For private circulation only

Cost Audit
Appointment
File Form CRA - 2 with Central Government along with fee as
specified in Companies (Registration Offices and Fees) Rules,
2014 within:
30 days of Board Meeting in which such appointment is made or
Within 180 days from commencement of Financial Year
whichever is earlier

Audit Report
Cost Auditor to submit report in Form CRA 3
Cost Auditor to forward Report to Board within 180 days from
closure of Financial Year
Board to consider and examine the report for any qualification

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Cost Audit
Company to upload Cost Audit Report within thirty days from
date of receipt of the same in Form CRA 4
CAR to be attached in PDF format and XBRL not specified
Filing fees for CRA - 4 will be as specified in Companies
(Registration Office and Fees) Rules, 2014
Company to provide full information and explanation on every
reservation / qualification as mentioned in the Report along
with such cost audit report while uploading in Form CRA 4
Exclusions

Exclusion from Cost Audit if:

Revenue from exports, in foreign exchange, exceeds 75% of total
revenue or
Operating from SEZ
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Cost Audit Report

Report to adhere to Cost Audit Standards
No mention of Cost Accounting Standards or GACAP as
compared to 2011 Rules
As per Institute guidelines, any deviation from these needs to
be disclosed
No need to give Performance Appraisal Report (PAR) to
Company. This will be part of Cost Audit Report and be filed
with MCA
With detailed cost sheets and PAR being filed with MCA, there
will be sharing of confidential information with MCA

Strictly Confidential. For private circulation only

Annx To CAR
a.
b.
c.
d.
e.
f.
g.
h.

Background, including collaboration details

Cost Accounting Policy
Process of Manufacture
Turnover break-up
Production, Capacity & Stocks & Sales qty
Major Inputs
Standard/Actual Consumption of Major Inputs
Cost Break-up of Imported Inputs

Strictly Confidential. For private circulation only

Annx To CAR
i. Qty & Cost of Major Utilities & their apportionment
j. Employee Details Costs, Headcount, attendance,
etc
k. Repairs & Maintenance
l. Net Fixed Assets & Depreciation
m. Overheads Break-up & Apportionment
n. R & D Expenses
o. Royalty & Technical Knowhow Charges
p. Abnormal/Non Recurring Costs
q. Non-Moving Stock
r. Written off Stocks/Forfeited Services
s. Inventory Valuation
Strictly Confidential. For private circulation only

Annx To CAR
t.
u.
v.
w.
x.
y.

Sales/revenue Break-up
Margin per unit of Output
Related Party Transactions
Excise/Service Tax Reconciliation
Profit Reconciliation
Cost Statements to be given for each type/variety/
description of good(s)/service(s), separately for
domestic/ exports/ related parties & captive
consumption

Strictly Confidential. For private circulation only

Contact Us
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Nathani Road, Vidyavihar - West, Mumbai 400086
Email:
kbhatia@kishorebhatia.com
www.kishorebhatia.com

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Thank You

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relating to Companies (Cost Records & Audit) Rules, 2014 to clients and other business
associates. No person should act upon the information contained in this publication without
obtaining specific professional advice. Whilst every care has been taken in the preparation of
this publication, it may contain inadvertent errors for which we shall not be held responsible
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