[Posted by Umakanth Varottil]
[The following
post is contributed by Nivedita Shankar of
Vinod Kothari & Company. She can be reached at nivedita@vinodkothari.com]
post is contributed by Nivedita Shankar of
Vinod Kothari & Company. She can be reached at nivedita@vinodkothari.com]
Putting all
speculation to rest, the Ministry of Corporate Affairs (MCA) on June 30, 2014
finally came out with the final rules relating to cost audit and cost records.
Although, the rules are yet to be gazetted, yet the finalized rules have surely
given an indication of the road ahead for cost audit and maintenance of cost
records. It however, remains to be seen if the delay in finalizing the rules
will actually uphold the age old saying ‘better
late than never’.
speculation to rest, the Ministry of Corporate Affairs (MCA) on June 30, 2014
finally came out with the final rules relating to cost audit and cost records.
Although, the rules are yet to be gazetted, yet the finalized rules have surely
given an indication of the road ahead for cost audit and maintenance of cost
records. It however, remains to be seen if the delay in finalizing the rules
will actually uphold the age old saying ‘better
late than never’.
The reigning confusion till June 30, 2014
The rules come
at a time when confusion reigned about the procedure regarding appointment of
cost auditor. With section 148 of Companies Act, 2013 being enforced with
effect from April 1, 2014 and the allied rules remaining to be enforced,
confusion prevailed regarding filing of e-forms for appointment of cost
auditors. This confusion was further fuelled by the provisions of rule 14 of Companies
(Audit and Auditors) Rules, 2014, which required ratification of remuneration
of cost auditors by shareholders. Thus, when the requirement to appoint a cost
auditor was itself not clear, the very reason to comply with rule 14 also got
defeated. Although the other question which arose was if by way of finalized
rules any company was mandated to appoint a cost auditor and thereby also
ratify the remuneration, then for the purpose of ratification will the company
have to convene a general meeting or conduct a postal ballot?
at a time when confusion reigned about the procedure regarding appointment of
cost auditor. With section 148 of Companies Act, 2013 being enforced with
effect from April 1, 2014 and the allied rules remaining to be enforced,
confusion prevailed regarding filing of e-forms for appointment of cost
auditors. This confusion was further fuelled by the provisions of rule 14 of Companies
(Audit and Auditors) Rules, 2014, which required ratification of remuneration
of cost auditors by shareholders. Thus, when the requirement to appoint a cost
auditor was itself not clear, the very reason to comply with rule 14 also got
defeated. Although the other question which arose was if by way of finalized
rules any company was mandated to appoint a cost auditor and thereby also
ratify the remuneration, then for the purpose of ratification will the company
have to convene a general meeting or conduct a postal ballot?
Highlights of Companies (Cost Records and Audit)
Rules, 2014
Rules, 2014
1. Applicability
of Rules
of Rules
The Rules have undoubtedly cut down the number of industries to which
they shall apply. This may come as a relief for companies engaged in industries
like textile, plywood, and paints. The Rules have listed down the ‘strategic
sectors’ to which the requirement to maintain cost records shall apply, but this
list has been left open with the use of the phrase ‘Companies engaged in the production of following goods in strategic
sectors, such as’. Apart from
this companies engaged in an industry regulated by a sectoral regulator or a
Ministry or Department of Central Government, companies involved in public
interest like railways, companies engaged in the business of production, import
and supply or trading of following medical devices shall also be covered by the
cost audit rules. Thus, notably the scope of applicability of rules has been
pruned down.
they shall apply. This may come as a relief for companies engaged in industries
like textile, plywood, and paints. The Rules have listed down the ‘strategic
sectors’ to which the requirement to maintain cost records shall apply, but this
list has been left open with the use of the phrase ‘Companies engaged in the production of following goods in strategic
sectors, such as’. Apart from
this companies engaged in an industry regulated by a sectoral regulator or a
Ministry or Department of Central Government, companies involved in public
interest like railways, companies engaged in the business of production, import
and supply or trading of following medical devices shall also be covered by the
cost audit rules. Thus, notably the scope of applicability of rules has been
pruned down.
Threshold limits
have been laid down for the requirement of cost audit for such companies.
have been laid down for the requirement of cost audit for such companies.
2. Method
of appointment of cost auditor
of appointment of cost auditor
Reading section
148 of Companies Act, 2013, it is evident that the appointment of cost auditor
shall happen only at a board meeting. Surprisingly, the need to take the prior
opinion from the audit committee has been seemingly done away with. This is
also clear from a review of the e-form CRA-2. One may choose to take a
different view though looking at the provision of section 177(4)(i) of Act,
2013. However, considering rule 14 of Companies (Audit and Auditors) Rules,
2014 the remuneration of cost auditors has to be recommended by the audit
committee.
148 of Companies Act, 2013, it is evident that the appointment of cost auditor
shall happen only at a board meeting. Surprisingly, the need to take the prior
opinion from the audit committee has been seemingly done away with. This is
also clear from a review of the e-form CRA-2. One may choose to take a
different view though looking at the provision of section 177(4)(i) of Act,
2013. However, considering rule 14 of Companies (Audit and Auditors) Rules,
2014 the remuneration of cost auditors has to be recommended by the audit
committee.
Further,
companies are also supposed to file a notice of appointment of cost auditor in
e-form CRA-2 within 30 days of board meeting in which such appointment is made
or within 180 days of commencement of FY, whichever is earlier.
companies are also supposed to file a notice of appointment of cost auditor in
e-form CRA-2 within 30 days of board meeting in which such appointment is made
or within 180 days of commencement of FY, whichever is earlier.
3. Submission
of cost audit report
of cost audit report
The rules have
cast a duty on the cost auditor to submit cost audit report in form CRA-3
within 180 days of end of FY. Every company to which the Rules apply to shall
within a period of 30 days from the date of receipt of cost audit report
furnish the same to the central government in e-form CRA-4.
cast a duty on the cost auditor to submit cost audit report in form CRA-3
within 180 days of end of FY. Every company to which the Rules apply to shall
within a period of 30 days from the date of receipt of cost audit report
furnish the same to the central government in e-form CRA-4.
4. Requirement
to maintain cost records
to maintain cost records
Companies
covered by Rule 3 including all units and branches shall for each financial
year maintain cost records in form CRA-1.
covered by Rule 3 including all units and branches shall for each financial
year maintain cost records in form CRA-1.
5. Performance
appraisal report
appraisal report
Seemingly, this
has been done away with. Under the erstwhile rules, this formed a part of cost
audit report.
has been done away with. Under the erstwhile rules, this formed a part of cost
audit report.
6. Non-applicability
of Rules
of Rules
The companies covered by Rule 3 and
i. whose revenue from
exports, in foreign exchange, exceeds seventy five per cent of its total
revenue or
exports, in foreign exchange, exceeds seventy five per cent of its total
revenue or
ii. which is operating
from a special economic zone (SEZ).
from a special economic zone (SEZ).
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– Nivedita Shankar
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