1.1 DEFINITION

(1) CIMA – According to Chartered Institute of Management Accountants, London

(CIMA), cost audit is “the verification of the correctness of cost accounts and of the

adherence to the accounting plan.”

In other words, cost audit is the verification of the cost of production of any product,

service or activity on the basis of accounts maintained by an enterprise in accordance

with the accepted principles of cost accounting. This definition of Cost Audit is

relevant to the voluntary Cost Audit without any statutory backing.

(2) ICWA – Cost Audit and Assurance Standard 103 issued by the ICWAI states that –

The objective of an audit of Cost Statements is to enable the auditor to express an

opinion whether the Cost Statements are prepared, in all material respects, in

accordance with an applicable Cost reporting framework and give a true and fair view

of the Cost of a Product, activity or service. In the case of a Cost Audit under the Cost

Audit Report Rules in India, the objective is to express an opinion on whether the Cost

Statements subject to audit represent a true and fair view of the Cost of production,

cost of sales and margin of products covered by the Cost Audit.

1.2 MEANING:

Cost Audit is the verification of the cost accounts and of the adherence to the

cost accounting plan. That is, it not only involves the examination of cost accounts but

also the fact that plan prepared in this connection has been duly executed. The Indian

Companies Act has made provisions to perform cost audit to certain categories of

companies engaged in the production processing, manufacturing and mining activities

under section 209 and 233 B. It has however not been made compulsory for all the

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companies. The duties and powers of the Auditor are set out under section 227 of the

said Act. Cost Auditor will not submit his report to the members of the company but

will have to submit to the Company Law Board.

1.3 PURPOSES AND OBJECTIVES

The following are some of the objectives for which cost audit is under taken:

To establish the accuracy of costing data. This is done by verifying the

arithmetical accuracy of cost accounting entries in the books of accounts.

To ensure that cost accounting principles are governed by the management

objectives and these are strictly adhered in preparing cost accounts.

To ensure that cost accounts are correct and also to detect errors, frauds and

wrong practice in the existing system.

To check up the general working of the costing department of the organization

and to make suggestions for improvement.

To help the management in taking correct decisions on certain important

matters i.e. to determine the actual cost of production when the goods are

ready.

To reduce the amount of detailed checking by the external auditor if effective

internal cost audit system is in operation

To advise management, on the basis of inter-firm comparison of cost records,

as regards the area where performance calls for improvement.

To promote corporate governance through various operational disclosures to

the directors.

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The social objectives of cost audit are-

To facilitate in fixation of reasonable prices of goods and services produced by

the enterprise.

To improve the productivity of human, physical and financial resources of the

enterprise.

To allocate optimum resources to the enterprise, productive and profitable

areas.

To available cost audited data as regard contracts containing escalation

clauses.

To facilitate in settlement of bills in the case of cost-plus contracts entered into

by the Government.

To pinpoint the areas of inefficiency and mismanagement, if any for the

benefit of shareholders, consumers, etc., such that necessary corrective action

could be taken in time.

1.4 ASPECTS

Cost audit offers valuable assistance to the management in its decision-making

process by examining the reliability of cost accounting data and information. Due to

the assistance provided by cost audit, management is in a position to know what price

is to be fixed for a product, whether the wastages are avoidable, whether to re-

organise sales or inventory systems, to make the work more efficient and so on. Also

cost audit is of great help in maintaining internal control and internal check and can be

of advantage even to the statutory financial auditor. Cost audit, apart from having all

the normal ingredient of audit i.e. vouching, verification, etc., has within its domain

elements of efficiency audit and propriety audit as well.

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Efficiency audit is directed towards the measurement of whether corporate plans have

been effectively executed. It is concerned with the utilisation of the resource in

economic and most remunerative manner to achieve the objectives of the concern. It

comprises of studying the plans of organisation, comparing actual performance with

plans and investigating the reasons for variances to take remedial action. For example,

the effective utilisation of capital is an organisation can be gauged by determining the

return on capital employed.

Propriety audit is concerned, with the executive actions and plans bearing on the

finances and expenditure of the company. The cost auditor has to judge:

(a) Whether the planned expenditure is designed to give optimum results.

(b) Whether the size and channels of expenditure were designed to produce the best

results.

(c) Whether the return from expenditure on capital as well as current operations could

be bettered by some other alternative plan of action.

1.5 WHEN DONE

Cost audit is basically carried out at the instance of the management for the above

advantages. Apart from this, different other circumstances also sometimes occasion

audit of cost accounts. The different types of cost audit are as follows:

i) Cost audit on behalf of the management: The principal object of this audit is

to see that the cost data placed before the management are verified and reliable

and prepared in such details as will serve the purpose of the management in

taking appropriate decisions. The detailed objectives include:

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a) Establishing the accuracy of the costing data, as for example, cost of

material used, allocation of wages into direct and indirect and on different

products, functions and cost centres.

b) Ensuring that the objectives of the cost accounting are being achieved

through appropriate collection, segregation, analysis and compilation of

data.

c) Ascertaining abnormal losses and gains along with the relevant causes,

expressed in financial terms in a manner that the person responsible for

such loss or gain is identified.

d) Determination of the unit cost of production in a precise but practicable

manner.

e) Establishing proper overhead rates for absorption of overheads by various

units of costs so that the cost is properly ascertained and there is no

significant over or under recovery of expenses.

f) Fixation of contract price and the determination of the additional or

supplementary charge that can be raised against customers for alterations,

etc.

g) Improving the quality of cost accounting system by obtaining the audit

observations and suggestions of cost auditor.

ii) Cost audit on behalf of a customer: in case of cost plus contracts, often the

buyer or the contractee insists on a cost audit to satisfy himself about the

correct ascertainment of cost. The provision for a cost audit in such a

circumstance is put in the relevant contract with the condition that the supplier

or the contractor will extend all co-operation to the cost auditor. The cost of

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production arrived at for this purpose may differ from the cost of production

ascertained for internal purpose.

iii) Cost audit on behalf of Government: sometimes, government is approached

with request for subsidies, protection, etc. Before taking a decision the

government may prefer to have the cost of production of the product

determined on the basis of cost audit to satisfy itself whether the need is

genuine or the industry seeking assistance is generally efficiently run. The

government, of its own also may initiate cost audit, in public interest to

establish the fair price of any product.

iv) Cost audit by trade association: where activities of a trade association

include maintenance of a price of the products manufactured by the member

units or where there is pooling or contribution arrangements, or uniform

costing the trade association may require the accuracy of costing information

submitted by the member-units checked. The trade association may seek full

information on the costing system, level of efficiency, utilisation of capacity,

etc.

v) Under companies Act- section 209 of the Companies Act, 12956 empowers

the government of India to order companies engaged in production,

processing, manufacturing or mining activities to maintain cost records in the

prescribed manner relating to utilisation of material, labour and other items of

cost. This would enable the management to identify the areas of inefficiencies

and high cost and take immediate corrective action. In exercise of these

powers, the Department of Company Affairs, Government of India, has issued

the “Cost Accounting (Records) Rules” in respect of a number of

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products/industries which are consumer oriented and earners of high profit

margin.

vi) Other Circumstances: Apart from the above reasons for going in for cost

audit, the under mentioned circumstances may warrant the introduction of

cost audit:

a) Pricing Fixation: The need for fixation of retention of price in the case of

materials of national importance like steel, cement etc. May cause a

necessity for cost audit. Also, to check excessive profiteering, cost audit

may be useful in knowing the true cost of production.

b) Cost Variation within the Industry: where the cost of production varies

significantly from unit to unit in the same industry, cost audit may be

necessary to find the reason for such differences.

c) Inefficient Management: where a factory is run inefficiently and

uneconomically, institution of cost audit may be necessary. It may be

particularly useful for the Government before taking up any further action.

d) Tax Assessment: where a duty or tax is levied on products based on cost of

production, the levying authorities may ask for cost audit to determine the

correct cost of production.

e) Trade Disputes: Cost audit may be useful in settling trade disputes about

claim for higher wages, bonus etc.

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1.5 USEFULNESS

Cost audit will prove to be useful to the management, society, shareholders and the

government because of the following:

1) Usefulness to the Management:

a) The management will get reliable data for its day to day operations like price

fixing, control, decision making, etc.

b) A close and continuous check on all wastes will be kept through a proper

system of reporting to the management.

c) Inefficiencies in the working of the company will be brought to the notice of

the management to take corrective action.

d) Management by exception becomes possible through allocation of

responsibilities to individual managers.

e) The system of budgetary control and standard costing will be greatly

facilitated.

f) A reliable check in the valuation of costing stock and work-in-progress can be

established.

g) It helps in the detection of errors and fraud.

2) Usefulness to the Society:

a) Cost audit is often introduced for the purpose of fixation of price. The prices

so fixed are based on the correct costing data an d so the consumers are saved

from exploitation.

b) Price increase by the industry is not allowed without proper justification as to

increase in cost of production; consumers are saved from unreasonable price

hike.

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c) Cost Audit is also useful for the purpose of cost control; cost reduction and

proper utilisation of scarce resources.

3) Usefulness to the Shareholders: Cost audit ensures that proper records are kept

as to purchases and utilisation of material and expenses incurred on wages,

overheads, etc. It also ensures that the unit has been run economically and

efficiently. Thus, the shareholders are assured of a fair return on their investment.

4) Usefulness to the Government:

a) Where the government enters into a cost plus contract, cost audit helps the

government to fix the price of the contract.

b) Cost audit helps the fixation of selling prices of essential commodities and

thus undue profiteering is checked.

c) Cost audit enables the government to focus its attention to inefficient units.

d) Cost audit enables the government to decide in favour of giving protection in

certain industries.

e) Cost audit facilitates settlement of trade disputes brought to the government.

f) Since cost audit ensures efficient running of the business and correct and

accurate use of cost data, a healthy competition is generated among the

various units in an industry. Thus it imposes an automatic check on inflation.

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1.6 FINANCIAL/ STATUTORY AUDIT V/S COST AUDIT

Financial Audit (FA) Cost Audit (CA)

1 FA is the audit of financial accounts. CA is the audit of cost accounts.

2 FA aims to know whether the

financial statements viz. Profit and

loss account and balance sheet present

a true and fair view of the business

results and financial position of the

business.

CA aims to determine the correctness

of the cost of each activity, and analyse

the propriety of expenditure and

efficiency of performance.

3 FA is concerned only with historical

data after the expenditure is incurred

and accounts are prepared.

CA also concerns itself with budgets

and has hence a focus on future.

4 FA can rely on the cost records for

data such as stock valuation,

expenditure, fixed assets etc.

CA can rely on FA for financial data

contained in the financial statements.

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2. COST AUDIT UNDER COMPANIES ACT

2.1 PROVISIONS OF S. 233B

TEXT

(1) Where in the opinion of the Central Government it is necessary so to do in

relation to any company required under clause (d) of sub-section (1) of section

209 too include in its books of account the particulars referred to therein, the

Central Government may, by order, direct that an audit of cost accounts of the

company shall be conducted in such manner as may be specified in the order by

an auditor who shall be a cost accountant within the meaning of the Cost and

Works Accounts Act, 1959 (23 of 1950):

Provided that if Central Government is of opinion that sufficient number of cost

accountants within the meaning of the Cost and Works Accountants Act, 1959 (23

of 1959), are not available for conducting the audit of the cost accounts of

companies generally, that Government may, by notification in the Official

Gazette, direct that, for such period as may be specified in the said notification,

such chartered accountant within the meaning of the Chartered Accountants Act,

1949 (38 of 1949), as possesses the prescribed qualifications, may also conduct

the audit of the cost accounts of companies, and thereupon a chartered

accountant possessing the prescribed qualifications may be appointed to audit the

cost accounts of the company.

(2) The auditor under this section shall be appointed by the Board of directors of the

company in accordance with the provisions of sub-section (IB) of section 224 and

with the previous approval of the Central Government:

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Provided that before the appointment of any auditor is made by the Board, a

written certificate shall be obtained by the Board form the auditor proposed to be

so appointed to the effect that the appointment, if made, will be in accordance

with the provisions of sub-section (IB) of section 224.

(3) An audit conducted by an auditor under this section shall be in addition to an

audit conducted by an auditor appointed under section 224.

(4) An auditor shall have the same powers and duties in relation to an audit

conducted by him under this section as an auditor of a company has under sub-

section (1) of section 227 and such auditor shall make his report to the Central

Government in such form 498 and within such time as may be prescribed and

shall also at the same time forward a copy of the report to the company.

(5) (a) A person referred to in sub-section (3) or sub-section (4) of section 227shall

not be appointed or re-appointed for conducting the audit of the cost accounts of

that company.

(b) A person appointed, under section 224, as an auditor of a company, shall not

be appointed or re-appointed for conducting the audit of the cost accounts of that

company.

(c) If a person, appointed for conducting the audit of cost accounts of a company,

become subject, after his appointment, to any of the disqualifications specified in

clause (a) or clause (b) of this sub-section, he shall, on and from the date on

which he becomes so subject, cease to conduct the audit of the cost accounts of the

company.

(6) Upon receipt of an order under sub-section (1), it shall be the duty of the company

to give all facilities and assistance to the person appointed for conducting the

audit of the cost accounts of the company.

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(7) The company shall, within thirty days from the date of receipt of a copy of the

repost referred to in sub-section (4), furnish the Central Government with full

information and explanations on every reservation or qualification contained in

such report.

(8) If, after considering the report referred to in sub-section (4) and the information

and explanations furnished by the company under sub-section (7), the Central

Government is of opinion that any further information or explanation is

necessary, that Government may call for such further information and explanation

and thereupon the company shall furnish the same within such time as may be

specified by the Government.

(9) On receipt of the report referred to in sub-section (4) and the in formations and

explanations furnished by the company under sub-section (7) and sub-section (8),

the Central Government may take such action on the report, in accordance with

the provisions of this act or any other law for the time being in force, as it may

consider necessary.

(10) The Central Government may direct the company whose cost accounts have

been audited under this section to circulate to its members, along with the notice

of annual general meeting to be held for the first time after the submission of such

report, the whole or such portion of the said report as it may specify in this behalf.

(11) If default is made in complying with the provisions of this section, the

company shall be liable to be punished with the fine which may extend to five

thousand rupees, and every officers of the company who is in default, shall be

liable to be punished with imprisonment for a team which may extend to three

years, or with the fine which may extend to five thousand rupees, or with both.

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2.2 QUALIFICATIONS OF COST AUDITORS [S. 226 r.w.S. 233B]

Section 233(B) of the Companies Act, 1956 provides that the Central Government

may, if it considers necessary, direct that the audit of cost accounts kept by a company

for a specified product or activity under Section 209(1)(d) shall be conducted by an

auditor who shall be a cost accountant within the meaning of the Cost and Works

Accountants Act, 1959. In other words, the Sec. 233B(1), in so far as it relates to

qualifications of cost auditor provides that a person holding certificate of practice

from the Institute of Cost and Works Accountants of India only can be appointed as a

cost auditor. The cost auditor may be an individual cost accountant or a firm of cost

accountants with at least two partners. A firm of cost accountants can be constituted

with the previous approval of the Central Government/Institute as required under the

regulation 113 of the Cost and Works Accountants Act, 1959 as amended from time

to time and in which all the partners are cost accountants holding certificate of

practice issued by the Institute of Cost and Works Accountants of India. Section 224

(1-B) of the Companies Act, 1956 further provides that a person can be appointed as a

cost auditor only if he is not in full time employment elsewhere.

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2.3 DISQUALIFICATIONS OF COMPANY AUDITORS [S. 226 r.w.S. 233B]

Section 226 of the Companies Act, 1956 provides for the qualifications and

disqualifications of the auditors. Reading of sub-Section (3) of Section 226 implies

that the following persons cannot be appointed or reappointed as cost auditor of a

company –

(1) A body corporate;

(2) An officer or employee of the company;

(3) A person who is a partner, or who is in the employment, of an offi cer or

employee of the company;

(4) A person who is indebted to the company for an amount exceeding one

thousand rupees or who has given any guarantee or provided any security

in connection with the indebtedness of any third person to the company for

an amount exceeding one thousand rupees;

(5) A person holding any security of that company after a period of one year

from the date of commencement of the Companies (Amendment) Act,

2000. (Explanation: “security” means an instrument which carries voting

rights);

(6) A person who is a director or a member of the private company,

(7) a person shall also not be qualified for appointment as auditor of a

company if he is, by virtue of sub-Section (3), disqualified for appointment

as auditor of any other body corporate which is that company’s subsidiary

or holding company or a subsidiary of that company’s holding company,

or would be so disqualified if the body corporate were a company,

(8) Under S.224 (1B), a firm which already holds the specified number of

company audits cannot accept any more company audits.[This does not

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apply to a private limited company, after the commencement of the

Companies Amendment Act, 2002].

An auditor, who after his appointment, becomes subject to any of the above

disqualifications, shall be deemed to have vacated his office as an auditor.

These disqualifications have been provided to ensure that the auditors are independent

and impartial.

2.4 RIGHTS OF COST AUDITOR

(a) Powers & Duties of Cost Auditor: an auditor shall have the same powers and

duties in relation to an audit conducted by him under this section as an auditor of a

company has under sub-section (1) of section 227. These rights are explained below.

1. The cost auditor enjoys the same powers and has the same duties as applicable

to the statutory auditor contained in Section 277(1) of the Companies Act,

1956 [vide Section 233B (4) of the Companies Act, 1956].

2. Like the auditor of financial accounts, the cost auditor also has the right of

access at all times to the books and vouchers, of the company (not necessarily

related to cost records or cost accounts) and he is entitled to require from the

officers of the company such information and explanations as he may consider

necessary in his duties as the cost auditor.

3. Sub-section (6) of Section 233B makes it a duty of the company to give all

facilities and assistance to the cost auditor.

4. It has also been provided in Rule 5 of the cost Audit (Report) Rules that the

company and every officer thereof, including persons referred to in Section

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2.5 DUTIES OF COST AUDITOR

The duties of the cost auditor are also similar to those of the (financial) auditor of the

company has under sub-Section (1) of Section 227 (Section 223B(4)).The duties of

the cost auditor inter-alia include:

(1) Proper Books: - To ensure that the proper books of accounts as required by Cost

Accounting Records Rules have been kept by the company so far as it appears

from the examination of those books and proper returns for the purpose of his

audit have been received from branches not visited by him;

(2) Prescribed Form: - To ensure that the Cost Audit Report and the detailed cost

statements are in the form prescribed by the Cost Audit Report Rules

(3) Verified Data: - To follow sound professional practices i.e. the report should be

based on verified data and observations may be framed after the company has

been afforded an opportunity to comment on them;

(4) Indirect Expenses: - The underline assumptions and basis for allocation and

absorption of indirect expenses are reasonable and are as per the established

accounting principles;

(5) Qualified Report: If the auditor is not satisfied in any of the aforesaid matters, he

may give a qualified report along with the reasons for the same;

(6) Submit Report: Sending the Report to the Cost Audit Branch within 180 days

from the end of the financial year with one copy to the company;

(7) Clarifications: Sending his replies to any clarification, that may be sought by the

Cost Audit Branch on his report, within 30 days from the date of receipt of

communication calling for such clarification.

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3. COST ACCOUNTING RECORD RULES AND COMPLIANCE REPORT

In exercise of the powers conferred by clause (b) of sub-section (1) of section 642

read with sub-section (4) of section 233B, and sub-section (1) of section 227 of the

Companies Act, 1956 (1 of 1956), and in supersession of the Cost Audit Report

Rules, 2001, except as respects things done or omitted to be done before such

supersession, the Central Government hereby makes the following rules, namely:-

1. Short Title and Commencement-

(1) These rules may be called The Companies (Cost Audit Report) Rules, 2011.

(2) They shall come into force on the date of their publication in the Official

Gazette.

2. Definitions and Interpretations. - In these rules, unless otherwise so provided,---

(a) “Act” means the Companies Act, 1956 (1 of 1956);

(b) “Cost Auditor” means an auditor appointed to conduct an audit of cost records,

under sub-section (2) of section 233B of the Act;

(c) “Form-I” means the Form prescribed in these rules for filing cost audit report

and other documents with the Central Government in the electronic mode;

(d) “Form-II” means the Form of the cost auditor’s report and includes auditor's

observations and suggestions, and Annexure to the cost audit report;

(e) “Form-III” means the Form of the performance appraisal report;

(f) “Product” means any tangible or intangible good, material, substance, article,

idea, know-how, 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, delivery or disposal.

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(g) “Product Group” in relation to tangible products means a group of

homogenous and alike products, produced from same raw materials and by using

similar or same production process, having similar physical or chemical

characteristics and common unit of measurement, and having same or similar

usage or application; and in relation to intangible products means a group of

homogenous and alike products or services, produced by using similar or same

process or inputs, having similar characteristics and common unit of

measurement, and having same or similar usage or application;

(h) “Report” means cost audit report duly audited and signed by the cost auditor in

the prescribed form of cost audit report;

(i) All other words and expressions used in these rules but not defined, and

defined in the Act and rules made under clause (d) of sub-section (1) of section

209 and sub-section (4) of section 233B of the Act shall have the same meanings

as assigned to them in the Act or rules, as the case may be.

3. Application –

(1) These rules shall apply to every company in respect of which an audit of the

cost records has been ordered by the Central Government under sub-section (1) of

section 233B of the Act.

(2) Every company as specified in sub-rule (1) shall, within ninety days of the

commencement of every financial year, file an application with the Central

Government seeking prior approval for appointment of the cost auditor, through

electronic mode, in the prescribed form, along with the prescribed fee as per the

Companies (Fees on Applications) Rules, 1999, and requisite enclosures.

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(3) Every cost auditor appointed under sub-rule (2) shall, within thirty days of

receipt of letter of appointment, inform his appointment to the Central

Government through electronic mode, in the prescribed form, along with the

requisite enclosures.

(4) Notwithstanding anything contained in sub-rule (2) and (3) above, every

company and every cost auditor shall follow the procedure prescribed vide

Ministry of Corporate Affairs’ General Circular No. 15/2011 [File No. 52/5/CAB-

2011] dated April 11, 2011.

4. Form of the Report –

(1) Every cost auditor, who conducts an audit of the cost records of the company,

shall submit the report along with auditor's observations and suggestions, and

Annexure to the Central Government in the prescribed form and at the same time

forward a copy of such report to the company.

(2) The cost audit report submitted on or after 1st day of April, 2012, irrespective

of the financial year of the company to which it relates, shall be in the form

prescribed under these rules.

(3) Every company as specified in sub-rule (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.

(4) The cost details, statements, schedules, etc. of every company, as specified in

sub-rule (3), relating to a period of not less than eight financial years immediately

preceding a financial year, or where the company had been in existence for a

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period less than eight years, in respect of all the preceding years shall be kept in

good order:

(5) Every cost auditor, who submits a report under sub-rule (1), shall also furnish

performance appraisal report, duly authenticated by the cost auditor, to the

Board/Audit Committee of the company in the prescribed form.

(6) Every cost auditor, who submits a report under sub-rule (1), shall also give

clarifications, if any, required by the Central Government on the cost audit report

submitted by him, within thirty days of the receipt of the communication

addressed to him calling for such clarifications.

5. Time limit for submission of Report – Every cost auditor shall forward his

report referred to in sub-rule (1) of rule 4 to the Central Government and to the

concerned company within one hundred and eighty days from the close of the

company’s financial year to which the report relates.

6. Cost Auditor to be furnished with the cost accounting records etc. – Without

prejudice to the powers and duties the Cost Auditor shall have under sub-section

(4) of section 233B of the Act, the company and every officer thereof, including

the persons referred to in sub-section (6) of section 209 of the Act, shall make

available to the cost auditor, such cost accounting records, cost statements, other

books and documents, and Annexure to the Report, duly completed, as would be

required for conducting the cost audit, and shall render necessary assistance to the

cost auditor so as to enable him to complete the cost audit and submit his report

within the time limit specified in rule 5.

7. Authentication of Annexure to the Cost Audit Report – The Annexure

prescribed with the cost audit report shall be approved by the Board of Directors

before submitting the same to the Central Government by the cost auditor. The

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Annexure, duly audited by the cost auditor, shall also be signed by the Company

Secretary and at least one Director on behalf of the company. In the absence of

Company Secretary in the company, the same shall be signed by at least two

Directors.

8. Penalties –

(1) If default is made by the cost auditor in complying with the provisions of rule

4 or rule 5, he/she shall be punishable with fine, which may extend to five

thousand rupees.

(2) If a company contravenes any provisions of these rules, the company and

every officer thereof who is in default, including the persons referred to in sub-

section (6) of section 209 of the Act, shall be punishable as provided under sub-

section (2) of section 642 read with sub-sections (5) and (7) of section 209 and

sub-section (11) of section 233B of Companies Act, 1956 (1 of 1956).

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4. FORM OF THE COST AUDIT REPORT

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ANNEXURE TO THE COST AUDIT REPORT

[See rule 2 and rule 6]

1. General Information

(1) CIN or GLN of the company:

(2) Name of the company:

(3) Registered office address:

(4) Corporate office address:

(5) E – mail address of the company:

(6) Company’s financial year to which the Cost Audit Report relates:

(7) Names, address, membership number and e-mail of the Cost Auditor(s):

(8) SRN Number and date of Filing of Form 23C with the Central

Government:

(9) Date of Board of Directors’ meeting wherein the Annexure to the cost

audit report were approved:

(10) No. of Audit Committee meetings held by the company, and attended

by the Cost Auditor.

2. Cost Accounting Policy

(1) Briefly describe the cost accounting policy adopted by the Company

keeping in view the requirements of the Companies (Cost Accounting

Records) Rules, 2011, the Companies (Cost Audit Report) Rules, 2011,

cost accounting standards and its adequacy or otherwise to determine

correctly the cost of production / operation, cost of sales, sales realization

and margin of the product / activity groups under reference separately for

each product / activity group. The policy should cover, inter alia, the

following areas:

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(a) Identification of cost centres / cost objects and cost drivers.

(b) Accounting for material cost including packing materials, stores and

spares, etc., employee cost, utilities and other relevant cost

components.

(c) Accounting, allocation and absorption of overheads.

(d) Accounting for Depreciation / Amortization

(e) Accounting for by-products / joint-products, scraps, wastage, etc.

(f) Basis for Inventory Valuation

(g) Methodology for valuation for Inter-Unit/ Inter Company and Related

Party transactions.

(h) Treatment of abnormal and non-recurring costs including classification

of other non-cost items.

(i) In case the Company has adopted IFRS, variations (if any) in treatment

of cost accounting arising out of adoption of IFRS in Financial

Accounting.

(j) Other relevant cost accounting policy adopted by the Company.

(2) Briefly specify the changes, if any, made in the cost accounting policy for

the product / activity group(s) under audit during the current financial year

as compared to the previous financial year.

(3) Observations of the Cost Auditor regarding adequacy or otherwise of the

Budgetary Control System, if any, followed by the company.

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3. Product Group Details (for the company as a whole)

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ANNEXURE TO THE COMPLIANCE REPORT

(See rule 2 and rule 5)

1. General

(a) Name of the company:

(b) Registered office address:

(c) Financial year to which the Compliance Report relates.

2. Quantitative Information

Sr.No.

Name of the Product/ Service Group Unit Annual Production

(Qty.)

Net Sales

(Qty.) (Value in Rupees)

A. Produced/ Manufactured Product Group1.

2.

3.etc.

B. Service Groups1.

2.

3.etc.

C. Trading Activities (Product group-wise)1.

2.

3.etc.

D. Other Income

Total Income as per Financial A/c

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3. RECONCILIATION STATEMENT

Net Margin (Profit / Loss) as per Cost Accounts (In Rs.)

A. From Produced / Manufactured Product Groups

B. From Services Groups

C. From Trading Activities

Total as per Cost Accounts

Add: Incomes not considered in Cost Accounts (if any)

Less: Expenses not considered in Cost Account (if any)

Add / Less: Difference in Stock Valuation

Profit / (Loss) as per Financial Accounts

Notes:

(i) For produced / manufactured product groups, use the nomenclature as used in

the central Excise Act / Rules, as applicable.

(ii) For services groups, use the nomenclature as used in the Finance Act / Central

Service Tax Rules, as applicable.

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