Cost Audit ensures that companies maintain proper cost records and that such records are audited to verify the correctness of cost accounting and cost management. It is governed by Section 148 of the Companies Act, 2013 and Companies (Cost Records and Audit) Rules, 2014, as amended from time to time.
The Institute of Cost Accountants of India (ICAI-CMA) prescribes the manner and standards for cost audit.

Applicability – Maintenance of Cost Records

• Applicable to every company (including foreign companies) which:
  1. Is engaged in production of goods or provision of services listed in Table A or Table B, and
  2. Has overall turnover ≥ ₹35 crore in the immediately preceding financial year.

Important Note:
👉 This requirement is applicable only to companies registered under Companies Act.
👉 Not applicable to individuals, HUFs, partnership firms, LLPs, unless they are registered as a “company” under the Act.

Applicability – Cost Audit

Cost Audit is applicable only if cost records are applicable AND threshold conditions are met.

(A) For Regulated Sectors (Table A)

Examples: Petroleum, pharma, telecom, power, sugar, fertilisers.

• Overall turnover ≥ ₹50 crore, and
• Individual regulated product/service turnover ≥ ₹25 crore.

(B) For Non-Regulated Sectors (Table B)

Examples: Cement, steel, textiles, glass, paints, machinery, tyres, paper, dairy products.

• Overall turnover ≥ ₹100 crore, and
• Individual product/service turnover ≥ ₹35 crore.

Who Can Be Appointed as Cost Auditor?

• Must be a Cost Accountant in practice (CMA with valid Certificate of Practice from ICAI-CMA).
• Cannot be:
  • Auditor of the financial statements of the same company, or
  • An officer/employee of the company.

Appointment Procedure

1. Board of Directors appoints Cost Auditor within 180 days from the beginning of financial year.
2. Company to file Form CRA-2 with MCA within 30 days of Board meeting OR within 180 days of beginning of FY (whichever is earlier).
3. Ratification by shareholders may be required (depends on company’s Articles & provisions).

Cost Audit Report – Timeline & Filing

• Form CRA-3 → Cost Auditor prepares and submits report to the Board within 180 days of closure of financial year.
• Form CRA-4 → Company files the Cost Audit Report with MCA within 30 days of receiving report from the auditor.

Snapshot Table

Exemptions from Cost Audit

Cost audit is not applicable to:

• Micro & Small enterprises (as per MSME definition).
• Companies whose revenue is entirely from:
  • 100% exports, or
  • Captive consumption/job work not meeting threshold.
• Companies operating from Special Economic Zones (SEZ) for 100% export activities.

Penalties

• Company: ₹25,000 – ₹5,00,000 fine.
• Officer in Default: ₹10,000 – ₹1,00,000.
• Cost Auditor: ₹25,000 – ₹5,00,000 for giving false/misleading statements.

Frequently Asked Questions (FAQs)

Q1. Is cost audit applicable to individuals, HUFs, partnership firms, or LLPs?

➡️No. Cost records and cost audit provisions are applicable only to companies registered under the Companies Act, 2013.
Individuals, HUFs, LLPs, and partnerships are outside the scope of Section 148.

Q2. Is it applicable to a foreign company operating in India?

➡️ Yes. If a foreign company (defined under Section 2(42)) has a place of business in India and meets turnover & activity criteria, cost records and audit are applicable.

Q3. Can a company have the same person as Statutory Auditor & Cost Auditor?

➡️No. The cost auditor must be a separate Cost Accountant in practice. Statutory auditors (CAs) cannot conduct cost audit.

Q4. What if the company maintains cost records but does not cross audit thresholds?

➡️ The company must still maintain cost records (CRA-1) but audit is not required unless thresholds under Rule 4 are triggered.

Q5. Can cost audit be voluntarily conducted?

➡️ Yes. A company may appoint a cost auditor voluntarily for better internal control, even if thresholds are not met.

Q6. What is the difference between Statutory Audit and Cost Audit?

• Statutory Audit → Verification of financial statements (profit, assets, liabilities).
• Cost Audit → Verification of cost structure, production efficiency, resource utilization, product pricing.

Q7. If a company has multiple products, some covered under cost audit and some not, how is applicability determined?

➡️ Applicability is checked product/service-wise (turnover thresholds for covered products) AND overall turnover of company.

Q8. Are SEZ units exempt from cost audit?

➡️ Yes, if the company’s entire revenue is from SEZ operations for exports.

Q9. What is the role of Form CRA-1?

➡️ CRA-1 provides the format of cost records to be maintained (quantitative and value details of materials, utilities, wages, production, sales, etc.).

Q10. Who regulates cost auditors in India?

➡️ The Institute of Cost Accountants of India (ICAI-CMA) regulates CMAs, while MCA enforces compliance under the Companies Act.