Cost Accounting Record Rules 2011 to Service Industry

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Cost Accounting Record Rules 2011 to Service Industry

				By: ajay singh
				April 3, 2012
All Articles by: ajay singh View Profile

Contents

Applicability of Cost Records in Real Estate/Construction Industry :-

Till the year 2010-11, cost records were required to be maintained for companies in the manufacturing, mining, processing industry dealing with manufactured goods normally or with specific service Industry. But from the year 2011-12, there has been a noteworthy change for the compliance of Section 209(1)(d) of the Companies Act.
With issue of notification with regard to The Companies (Cost Accounting Records) Rules, 2011(CARR-2011)
Dated 3rd June 2011, the Ministry of Cost Records brought Real Estate / Construction Industry also under statutory Cost Record Maintenance Regime.

Rule 2(l)(IX) of CARR 2011 specifies:-

“Processing Activity” includes any act, process, procedure, function, operation, technique, treatment or method employed in relation to “(ix) constructing, reconstructing, reconditioning, repairing, servicing, refitting, finishing or demolishing of buildings or structures; or”
Applicability clause state that:
So, if the company's turnover exceeds Rs 20 Crore or,
Net Worth exceeds Rs. 5 Crores or,
Company is listed..

For the Statutory auditor:-

A. CARO require the statutory auditor to comment on:-

"(viii) where maintenance of cost records has been prescribed by the Central Government under clause (d) of sub-section (1) of section 209 of the Act, whether such accounts and records have been made and maintained;
All the statutory auditors of the real estate/construction companies must take note of it and while reporting in CARO for the year 2011-12 must change the comment they were writing upto 2010-11.
Now they are supposed to mention cost records has been prescribed by the Central Government under clause (d) of sub-section (1) of section 209 of the Act.
Also, the statutory auditors are required to mention whether such records have been made and maintained.
The statutory auditor should review all the cost records and ensure that the same have been made and maintained. However, new Cost Accounting Records Rules 2011 have made the filing of the Cost Compliance Report with the Ministry compulsory. So the Statutory Auditor can review the Draft Compliance Report and few cost sheets and then give his comments in CARO.

B. Steps to be taken by Real Estate/Construction Companies for compliance of Companies Cost Accounting Record rules 2011 for the year 2011-12:

Prepare Cost Records for all the locations/Projects for the year 2011-12.
Consolidate the cost records for the company as a whole.
Prepare reconciliations of cost records with financial records
Prepare the annexure to the Compliance report.
Obtain Compliance Report as prescribed in Form B. The Report has to be duly signed by the Cost Accountant.
Obtain the approval of the Board of Directors in respect of Annexure to the compliance report.
Fill the details in Form A.
File Form A along with attachments like Compliance Report and Annexure with the Ministry of Corporate Affairs before 27th September 2012.
The Ministry of Corporate Affairs has issued a circular stating that these rules will not be applicable if the company is performing only jobwork related activities and is not using its own material.

Extract of MCA circular:-

As per the provisions of MCA General Circular No. 67/2011 dated 30th November 2011, all companies engaged in the construction business either as contractors or as sub-contractors, who meet with the threshold limits laid down in Rule 3 of the Companies (Cost Accounting Records) Rules, 2011 and undertake jobs with the use of own materials [whether self manufactured/produced or procured from outside] shall be required to maintain cost records and file a compliance report with the Central Government in accordance with the provisions of the Companies (Cost Accounting Records) Rules, 2011. This includes companies engaged in the construction and/or development of residential, commercial or industrial estates i.e. development of township, residential units, commercial complex, office blocks, industrial parks [including SEZ] etc. or construction of highways, rails, roads, bridges, industrial & nonindustrial structures, or other infrastructure facilities etc.
The provisions of Companies (Cost Accounting Records) Rules, 2011 would also apply for construction activities undertaken under BOT/BOOT mode, or the projects undertaken as EPC contractor or the projects undertaken abroad by a company incorporated in India.
However, if a company is engaged in the contracting or sub-contracting activities and is paid only the job work or conversion charges, then the company will not be covered under Companies (Cost Accounting Records) Rules, 2011. Such contractors or subcontractors who are doing construction jobs without using own materials and are thus paid either the job work charges or the conversion charges only will not be covered under the Companies (Cost Accounting Records) Rules, 2011.
These Rules also do not apply to such Joint Ventures that are non-corporate entities [i.e. not companies registered under the Companies Act] or to unlisted companies having net worth less than Rs.5 crore & turnover less than Rs.20 crore or to a body corporate governed by any special Act.