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ANALYSISOF COMPANIES(COSTACCOUNTINGRECORDS)RULES,2011 & COMPANIES(COSTAUDITREPORT)RULES,2011

Presentationby:

CMA

D.P.SINGH&CMARAVISAHNI CostAccountants

AGENDA

COMPANIES(COSTACCOUNTING RECORDS)RULES,2011

BACKGROUND

BACKGROUND
MCA had earlier issued 44 'Cost Accounting Record Rules' in respect of number of products/industries(aslistedundersection209(1)(d)ofCompaniesAct) According to these rules, all companies engaged in activities of production or manufacturing, etc. (for which cost accounts records have been prescribed) should maintain accounting records relating to the utilisation of materials, labour and other itemsofcost Each book of account and the proforma prescribed by the rules made for specific industry should be completed within the prescribed time limit after the end of the relevantfinancialyearofthecompany However,insupersession of36outof44costaccountingrecordrules,MCAissuedthe general Cost Accounting Records Rules known as The Companies (Cost Accounting Records)Rules,2011videG.S.R.429(E)dated3rd June,2011. Aspersubrule(2)ofRules1,theseruleshavecomeintoforceonthedate ofpublication intheOfficialGazettei.e.3rd June,2011.

APPLICABILITY
COMPANIES(COSTACCOUNTINGRECORDS)RULES,2011

APPLICABILITY
COMPANIES(COSTACCOUNTINGRECORDS)RULES,2011

ToeveryCompany

ForeignCompanydefinedu/s 591ofCompaniesAct,1956

which is engaged in production, processing, manufacturingorminingactivities andwherein:

aggregate value of net worthasonthelastdateof immediately preceding financial year exceeds five crores ofrupees

OR

wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees

OR

wherein the companys equityordebtsecurities are listed or are in the process of listing on any stock exchange, whether in India oroutsideIndia

APPLICABILITY
Exceptions (i.e.rulesshallnotapplyto: i. acompanywhichisabodycorporategovernedbyanyspecial act; ii. to the activities or products covered in the Cost Accounting Record Rules specifically made for Bulk Drugs, Formulations, Fertilizers, Sugar, Industrial Alcohol, Electricity Industry, PetroleumIndustry,Telecommunications Supersedes: all earlier 36 Record Rules except for 8 regulated groups of industriesmentionedaboveinexception(ii).

DEFINITIONS

DEFINITIONS
COMPANIES(COSTACCOUNTINGRECORDS)RULES,2011: ManufacturingActivity includesanyact,processormethodemployedin relationto (i)transformationofrawmaterials,components,subassemblies,orpartsinto semifinishedorfinishedproducts;or (ii) making, altering, repairing, fabricating, generating, composing, ornamenting, furnishing, finishing, packing, repacking, oiling, washing, cleaning, breakingup, demolishing, or otherwise treating or adapting any productwithaviewtoitsuse,sale,transport,deliveryordisposal;or (iii)constructing,reconstructing,reconditioning,servicing,refitting,repairing, finishingorbreakingupofanyproducts

DEFINITIONS
ProcessingActivity includesanyact,process,procedure,function,operation, technique,treatmentormethodemployedinrelationto (i)alteringtheconditionorpropertiesofinputsfortheiruse,consumption,sale, transport,deliveryordisposal;or (ii)accessioning,arranging,describing,orstoringproducts;or (iii) developing, fixing, and washing exposed photographic or cinematographic filmorpapertoproduceeitheranegativeimageorapositiveimage;or (iv)printing,publishing,finishing,perforation,trimming,cutting,orpackaging;or (v)pumpingoil,gas,water,sewageoranyotherproduct;or (vi)transformingortransmitting,distributingpowerorelectricity;or (vii) harboring, berthing, docking, elevating, lading, stripping, stuffing, towing, handling,orwarehousingproducts;or

DEFINITIONS
(viii)preservingorstoringanyproductincoldstorage;or (ix) constructing, reconstructing, reconditioning, repairing, servicing, refitting,finishingordemolishingofbuildingsorstructures;or (x)farming,feeding,rearing,treating,nursing,caring,andstockingofliving organisms;or (xi) telecasting, broadcasting, telecommunicating voice, text, picture, information,dataorknowledgethroughanymodeormedium;or (xii)obtaining,compiling,recording,maintaining,transmitting,holdingor usingtheinformationordataorknowledge;or (xiii)executinginstructionsinmemorytoperformsometransformation and/orcomputationonthedatainthecomputer'smemory.

DEFINITIONS
ProductionActivity includesanyact,process,ormethodemployedin relationto (i)transformationoftangibleinputs(rawmaterials,semifinishedgoods,or subassemblies) and intangible inputs (ideas, information, know how) into goodsorservices;or (ii) manufacturing or processing or mining or growing a product for use, consumption,sale,transport,deliveryordisposal;or (iii)creationofvalueorwealthbyproducinggoodsorservices. Turnover meansgrossturnovermadebythecompanyfromthesaleor supplyofallproductsorservicesduringthefinancialyear.It includesany turnoverfromjobworkorloanlicenseoperationsbutdoesnotincludeany nonoperationalincome;

DEFINITIONS
Product meansanytangibleorintangiblegood,material,substance,article,idea, knowhow, method, information, object, service, etc. that is the result of human, mechanical, industrial, chemical, or natural act, process, procedure, function, operation, technique, or treatment and is intended for use, consumption, sale, transport,store,deliveryordisposal. ProductGroup inrelationtotangibleproductsmeansagroupofhomogenousand alike products, produced from same raw materials and by using similar or same production process, having similar physical or chemical characteristics and common unitofmeasurement,andhavingsameorsimilarusageorapplication;andinrelation tointangibleproducts means a group of homogenous and alike products or services, producedbyusingsimilarorsameprocessorinputs,havingsimilarcharacteristicsand commonunitofmeasurement,andhavingsameorsimilarusage.

DEFINITIONS
COMPANIES(COSTACCOUNTINGRECORDS)RULES,2011: CostRecords meansbooksofaccountrelatingtoutilisation ofmaterials, labour andotheritemsofcostasapplicabletotheproduction,processing, manufacturingorminingactivitiesofthecompany FormA meanstheformprescribedintheserulesforfilingcompliancereport andotherdocumentswiththeCentralGovernmentintheelectronicmode FormB meanstheformofthecompliancereportandincludesAnnexureto thecompliancereport.

COMPLIANCES
Companies(CostAccountingRecords)Rules,2011

MAINTENANCEOFRECORDS
Every company to which these rules apply, including all units and branches thereof shall, in respect of each of its financialyearcommencingonorafterthe1st dayofApril, 2011,keepcostrecords. Thecost records referred toin subrule (1) above shall be kept on regular basis in such manner so as to make it possibletocalculateperunitcostofproductionorcostof operations,costofsalesandmarginforeachofitsproducts and activities for every financial year on monthly/ quarterly/halfyearly/annualbasis. The cost records shall be maintained in accordance with thegenerallyacceptedcostaccountingprinciplesandcost accounting standards issued by the Institute. The variations,ifany,shallbeindicatedandexplained.

MAINTENANCEOFRECORDS
Thecostrecordsshallbemaintainedinsuchmannersoastoenablethe control overvariousoperationsandcosts.

All such cost records and cost statements, shall be reconciled with the auditedfinancialstatementsforthefinancialyear All such cost records, cost statements, maintained under these rules shallbereconciled withtheauditedfinancialstatementsforthefinancialyearsimmediately precedingafinancialyearorwherethecompanyhadbeeninexistence foraperiodlessthaneightyears,inrespectofalltheprecedingyears shallbekeptingoodorder.

FORMOFTHECOMPLIANCEREPORT
Every company to which these rules applyshallsubmitaComplianceReport, intherespectofeachofitsfinancialyear commencing on or after the 1st day of April,2011, duly certified by a Cost Accountant, along with the Annexure to the Central Government,intheprescribedform.

TIMELIMITFORSUBMISSIONOF COMPLIANCEREPORT
Every company shall submit the compliance report referred to in rule5totheCentralGovernment within one hundred and eighty days from the close of the

companys financial year to which the compliance report relates.

AUTHENTICATIONOFANNEXURE TOTHECOMPLIANCEREPORT
The Annexure prescribed with the compliance report, as certified by the cost

accountant, shall be approved by the Board of Directors beforesubmittingthesameto theCentralGovernmentbythe company.

PENALTIES
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 Rupees 5000 (five thousand rupees only). If a Company contravenes any provisions of theserules: the company and every officer thereof whoisindefault, includingthepersonsreferredtoinsection 209(6)oftheCompaniesAct,1956 shall be punishable as provided under section 642(2) read with sections 209(5) and(7)ofCompaniesAct,1956.

SAVINGS
Thesupersession oftheCostAccountingRecordsRules,shallnotinanyway affect anyright,obligationorliabilitiesacquired,accruedorincurredthereunder; any penalty, forfeiture or punishment incurred in respect of any contraventioncommittedthereunder;and any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid and; any such investigations, legal proceeding or remedy may be institute, continuedorenforcedand; anysuchpenalty,forfeitureorpunishmentmaybeimposedasifthoserules hadnotbeensuperseded.

COMPANIES(COSTAUDIT REPORT)RULES,2011

BACKGROUND

BACKGROUND
MCAhadearlierissuedCostAuditReportRules,2001whichhasnowbeen supersededbytheCostAuditReportRules,2001.

MCAhasnotifiedCompanies(CostAuditReport)Rules,2011vide notificationnumberG.S.R.430(E)dated03rd June,2011

GeneralCircularNo.15/2011[TOBEINSERTED]

It is pertinent to mention that the Cost Audit Branch, MCA has issued an order no. F. No. 52/26/CAB-2010 dated 02nd May, 2011 (2nd May Order) providing for the eligibility of companies mandatorily required to get their cost accounting records audited by a cost auditor. The criterion fixed for applicability of 2nd May Order is that all companies to which any of the following rules apply:
(a) Cost Accounting Records (Bulk Drugs) Rules, 1974 (b) Cost Accounting Records (Formulations) Rules, 1988 or (c) Cost Accounting Records (Fertilizers) Rules, 1993 or (d) Cost Accounting Records (Sugar) Rules, 1997 or (e) Cost Accounting Records (Industrial Alcohol) Rules, 1997 or (f) Cost Accounting Records (Electricity Industry) Rules, 2001 or (g) Cost Accounting Records (Petroleum Industry) Rules, 2002 or (h) Cost Accounting Records (Telecommunications) Rules, 2002

and wherein: (a) the aggregate value of net worth as on the last date of the immediately preceding financial year exceeds rupees five crores; or (b) the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceeding financial year exceeds rupees twenty crores; or (c) the companys equity or debt securities are listed or are in process of listing on any stock exchange, where in India or outside India; shall get the cost accounting records audited by a cost auditor.

APPLICATION
COMPANIES(COSTAUDITREPORT)RULES,2011

APPLICABILITY
COMPANIES(COSTAUDITREPORT)RULES,2011
Theserules shallapplytoeverycompanyinrespectofwhichanauditofthe cost recordshasbeenorderedbytheCentralGovernmentundersubsection(1)of section233BoftheAct.

Everycostauditorappointedundersubrule(2)shall,withinthirtydaysofreceiptof letterofappointment,informhisappointmenttotheCentralGovernmentthrough electronicmode,intheprescribedform,alongwith therequisiteenclosures.

Notwithstandinganythingcontainedinsubrule(2)and(3)above,everycompany andeverycostauditorshallfollowtheprocedureprescribedvideMinistryof CorporateAffairs GeneralCircularNo.15/2011[FileNo.52/5/CAB2011]datedApril 11,2011.

DEFINITIONS

DEFINITIONS
COMPANIES(COSTAUDITREPORT)RULES,2011 CostAuditor meansanauditorappointedtoconductanauditofcost records,undersubsection(2)ofsection233BoftheAct; FormI meanstheFormprescribedintheserulesforfilingcostaudit report andotherdocumentswiththeCentralGovernmentintheelectronicmode; FormII meanstheFormofthecostauditorsreportandincludesauditor's observationsandsuggestions,andAnnexuretothecostauditreport; FormIII meanstheFormoftheperformanceappraisalreport;
Product sameasdefinedunderCompanies(CostAccountingRecords)Rules, 2011. Product Group same as defined under Companies (Cost Accounting Records) Rules,2011.

COMPLIANCES
Companies(CostAuditReport)Rules,2011

MAINTENANCEOFRECORDS
Maintenance of cost records is a pre requisite to conduct theCostAudit. Everycompanyincludingallunitsandbranches. To be kept on regular basis to calculate per unit cost of productionorcostofoperation,costofsalesandmargin. Foreachofitsproductsandactivities Onmonthly/quarterly/halfyearly/annualbasis InaccordancewiththeGenerallyAcceptedCostAccounting PrinciplesandCostaccountingStandardsissuedbyICWAI. Variationsaretobeclearlyindicatedandexplained. Toachieveoptimumeconomies inutilizationsofresources. To be reconciled with the annual financial audited statements Tobekeptingoodorderforeightyears. EveryCostAuditorshallalsofurnishperformanceappraisal reporttotheBoard/AuditCommitteeofcompany Every Cost Auditor to reply to the clarifications, if any, soughtbyCentralGovernmentwithin30daysofreceiptof communication

FORMOFTHECOMPLIANCEREPORT
FORM I General information about the companyandtheCostAuditor. Attachment CostAuditReport as per the Companies (Cost AuditReport)Rules,2011. FORM II Cost Audit Report Annexure to theCostAuditReport FORMIII PerformanceAppraisalReport

TIMELIMITFORSUBMISSIONOF COMPLIANCEREPORT

Time limit for submission of the compliance report with in 180 days from the close of the company financial year(before30June2011forthecurrent year).

AUTHENTICATIONOFANNEXURE TOTHECOMPLIANCEREPORT
AuthenticationoftheCostAuditReport and its annexure should be approved by the BOD before submitting to the Central Government by the Cost Auditor. The annexure duly audited by the Cost Auditor should be signed by the Company Secretary and at least one Director. If there is no Company Secretary, the same to be signed by at leasttwodirectors.

PENALTIES
Cost accountant If default is made in complying with the provision punishable withfineuptoRs.fivethousand.

Company and officers If default imprisonment up to 6months or Rs. 10,000/ orboth

Everycostauditor,whoconductsanauditofthecostrecordsof thecompany,shallsubmitthe reportalongwithauditor'sobservationsandsuggestions,andAnnexuretotheCentral Governmentintheprescribedformandatthesametimeforward acopyofsuchreportto thecompany Thecostauditreportsubmittedonorafter1stdayofApril,2012,irrespectiveof thefinancialyearofthecompanytowhichitrelates.

FORMOFREPORT

Every company as specified in subrule (1) of rule 3 shall, keep and maintain cost details, statements, schedules, etc. for each unit and each product or activity comprised in each product group, duly authenticated by atleast two Directors of the company and the cost auditor. The cost details, statements, schedules, etc. of every company,asspecifiedinsubrule(3),relatingtoaperiodof notlessthaneightfinancialyearsimmediatelyprecedinga financialyear,shallbekeptingoodorder. Every cost auditor, who submits a report under subrule (1), shall also give clarifications, if any, requiredbytheCentralGovernmentwithinthirty days of the receipt of the communication addressedtohimcallingforsuchclarifications.

RECENTAMENDMENTS
Companies(CostAuditReport)Rules,2011 And Companies(CostAccountingRecords)Rules,2011

MINISTRYOFCORPORATEAFFAIRS MasterCircularNo. 2/2011 (supersedingallearliercircularsonthissubject)


a cost auditor is required to comment on the scope and performance of internal audit of cost records the cost auditor cannotalsobetheinternal auditor of a company for the period for which he is conductingthecostaudit His obligation to answer queries from the Ministry ofCorporateAffairsarising outofreviewofcostaudit reports should not debar him from accepting another appointment as costauditorofacompany number of companies in respect of which cost audit reports have not been submitted and have become overdue shall also be taken into accountforthepurposes of ceiling under section 224(1B) cost audit report shall be signed by anyone of the partners of the firm responsible for the conduct ofcostauditinhisownhand alongwith his membership number,forandonbehalfof the firm. In any case the report should not be signed by merely affixing the firms name.

cost accountants ensure that full and complete details of costaccounts arefurnishedintheir costauditreports

If a company is covered under cost audit for the first time, then the cost auditor shall mention the figures for the previous year(s)

COSTAUDIT SECRETARIAL& PROCEDURALASPECTS

SECRETARIAL&PROCEDURALASPECTSTOCOSTAUDIT
PROCEDUREFORCOSTAUDIT 1. Issue of Cost Audit Order by Cost Accounts Branch, Ministry of Corporate Affairs for the product for which the cost audit is to be conducted, for the financial year and also for every financial year continuously. 2. Receipt/downloadingofnotificationCostAuditOrder,bytheCompany.

3. ProposedCostAuditortoprovideacertificateunderSection224 (IB)of TheCompaniesAct,1956. 4. BoardResolutiontobepassedbytheCompanyforappointmentof CostAuditor.

SECRETARIAL&PROCEDURALASPECTSTOCOSTAUDIT
5. PROCEDUREFORCOSTAUDIT Form23CtobefiledbytheCompany,withCostAccountsBranch, MCAseekingapprovalforappointmentofCostAuditor. EnclosurewithForm23C a)CoveringLetter b)CertifiedCopyofBoardResolutionpassedbytheCompanyfor appointmentofCostAuditor. c)ACertificateinwritingbytheproposedCostAuditorshowing complianceofSection224(1B). d)Onlinepaymentoffilingfeeorpaymentbychallanfortherequired amountpayabletoPAYANDACCOUNTSOFFICER,MCApayableat NEWDELHI. Feespayable:(asondate) NominalShareCapital Rs.Feespayable LessthatRs.25lacs Rs.500/ Rs.25lacsormorebutlessthanRs.5Crores Rs.1000/ Rs.5Croresormore Rs.2000/

SECRETARIAL&PROCEDURALASPECTSTOCOSTAUDIT
PROCEDUREFORCOSTAUDIT 6. 7. 8. ReceiptofapprovalfromtheCostAccountsBranch,MCA. ConductofCostAudit. ApprovaloftheCostAuditReportandAnnexuretotheCostAudit ReporttotheAuditCommittee. 9. Submission of the Cost Audit Report and Annexure to the Cost AuditReporttotheGovernmentwithacopytotheCompany,by thecostauditor.

COSTAUDIT SuggestedStepbyStepapproachfor CompanySecretaries

SuggestedstepbystepapproachtoCostAudit
Step1 Pleasecheckandconfirmapplicabilityofprovisionsonyourcompanyas discussedinGroupsA,B&Cabove. Step2 Incaseyourcompanyoranyunit thereoffalls in Group'A'orGroup'B', then go for short listing a Cost Auditor to be appointed u/s 233B to comply with applicable provisions and obtain certificate of eligibility u/s 224(1B) and certificate of Independence (arm's length relationship with thecompany)followedbythereferencetopassingofboardresolutionfor appointmentofcostauditor,referencetoauditcommittee,onlinefilingof Form23CwiththeCentralGovernmentetc.,

SuggestedstepbystepapproachtoCostAudit
Step3 IncaseyourcompanyoranyunitthereoffallsinGroup'C',thengofor shortlistingaCostAccountant(eitherinserviceinyourcompanyorin independent practice) for ensuring issuance of Certificate of Compliance Step4 IncaseyourcompanyoranyunitthereoffallsinGroup'A',thengofor completion/ compilation ofCostAccountingRecords asperCost AccountingRecordsasapplicableonyourindustry(oneofthe8 notified).

SuggestedstepbystepapproachtoCostAudit
Incase yourcompanyoranyunitthereoffallsinGroup'B',thengofor completion of Cost Accounting Records for the F.Y. 201112, and for previoustwoyearsi.e.F.Y.201011&200910,asperCompanies(Cost AccountingRecords)Rules,2011. Incase yourcompanyoranyunitthereoffallsinGroup'C',thengofor completion of Cost Accounting Records for the F.Y. 201112, as per Companies(CostAccountingRecords)Rules,2011.

SuggestedstepbystepapproachtoCostAudit
Incase yourcompanyoranyunitthereoffallsinGroup'B',then goforcompletionofCostAccountingRecords for the F.Y. 2011 12,andforprevioustwoyearsi.e.F.Y.201011&200910,asper Companies(CostAccountingRecords)Rules,2011. Incase yourcompanyoranyunitthereoffallsinGroup'C',then goforcompletionofCostAccountingRecords for the F.Y. 2011 12,asperCompanies(CostAccountingRecords)Rules,2011.

SuggestedstepbystepapproachtoCostAudit

Step5 At the end of the financial year, complete these records and getthemCostAuditedorgetCertificateofComplianceissued fromtheCostAccountant/Auditor,asthecasemaybe. Step6 Make the necessary disclosures in the Annual Report of your company.

THANKS
For clarifications, pl s contact

cma D.P. Singh +919811154931 cma Ravi Sahni +919810063419

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