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TMI BlogCOST AUDIT UNDER COMPANIES ACT, 2013X X X X Extracts X X X X X X X X Extracts X X X X ..... COST AUDIT UNDER COMPANIES ACT, 2013 - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 14-6-2014 - - Section 148 of Companies Act, 2013 gives powers to the Central Government to specify audit of items of cost in respect of certain companies. The provisions related to cost audit under this section are discussed as below: The Central Government, may, by order, in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the utilization of material or labor or to other items of cost may be prescribed shall also be included in the books of account kept by that class of companies; The Central Government before i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuing such order in respect of any class of companies regulated under a special act shall consult the regulatory body constituted or established under such special Act. (eg., for Telecom companies, Telecom Regulatory Authority of India is to be consulted); If the Central Government is of the opinion, that it is necessary to do so, it may, by order, direct that the audit of cost records of class of companies and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted in the manner specified in the order; The audit shall be conducted by a Cost Accountant in practice who shall be appointed by the Board on such remuneration as may be determined by the members in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such manner as may be prescribed; No person appointed under Section 139 of the Act as an auditor of the company shall be appointed for conducting the audit of cost records; The auditor conducting the cost audit shall comply with the cost auditing standards, which means such standards as are issued by the Institute of Cost Accountants of India, constituted under the Cost and Works Accountants Act, 1959, with the approval of the Central Government; This audit is conducted in addition to the audit conducted under Section 143 (which deals with powers of auditors and auditing standards, which is inconsistent with the provisions of the Act itself); The qualifications, disqualifications, rights, duties and obligations applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to auditors under Chapter X shall, so far as may be applicable, apply to a cost auditor appointed under this section; It shall be the duty of the company to give all assistance and facilities to the cost auditor for auditing the records of the company; The report on the audit of cost records shall be submitted by the cost accountant in practice to the Board of Directors of the company; A company shall within 30 days from the date of receipt of a copy of the cost audit report prepared in pursuance of a direction furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein; If, after considering the cost audit report and the information and exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation furnished by the company, the Central Government is of the opinion that any further information or explanation is necessary, it may call for such further information and explanation and the company shall furnish the same within such time as may be specified by that Government; Remuneration Rule 14 of The Companies (Audit and Auditor) Rules, 2014 deals with the remuneration given to Cost Auditor. Remuneration of the cost auditor is fixed by the companies which are divided into two categories: Companies which are required to constitute audit committee; Companies which are not required to constitute audit committee. In case the companies which are required to constitute audit committee- The Board m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay appoint an individual, who is a Cost Accountant in practice, or a firm of Cost Accountants in practice, as Cost Auditor on the recommendations of the Audit Committee, which shall also recommend remuneration for such cost auditor; The remuneration recommended by the Audit Committee shall be considered and approved by the Board of Directors and ratified subsequently by shareholders. According to Rule 14(b) in case the companies which are not required to constitute Audit Committee, the Board shall appoint an individual, who is a Cost Accountant in practice or a firm of Cost Accountants in practice as Cost Auditor and the remuneration of such cost auditor shall be ratified by the shareholders. In this Rule 14(b) it is not indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cated whether the remuneration shall be approved by the Board of Directors which may be ratified subsequently by the shareholders. Whether it may be presumed it is the implied power of the Board of Directors. Penalty If any default is made in complying with the provisions of Section 148 The company shall be punishable with fine which shall not be less than Rs.25,000/- but which may extend to Rs.5 lakhs and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs.10,000/- but which may extend to Re.1 lakh or with both; The Cost auditor of the company who is in default shall be punishable with fine which shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be less than Rs.25,000/- but which may extend Rs.5 lakhs. If the Cost Auditor has contravened such provisions knowingly or willfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than Re.1 lakh which may extend up to Rs.25 lakhs. Further the Cost Auditor shall be liable to refund the remuneration received by him to the company and pay damages to the company, statutory bodies or authorities or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report. Cost Records and Cost Audit By virtue of the po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers given under Section 469(1) and 469(2) of the Act the Central Government made draft rules viz., Companies (Cost Records and Cost Audit) Rules, 2013 ( Rules for short) and put the same in the web site for the comments of the stakeholders and the public. The comments and suggestions on the said matter are to be reached to the Ministry by 6 th December 2013. These rules are applicable to three types of companies engaged in the production of goods or services- Companies engaged in strategic sectors; Companies engaged in an industry regulated by a Sectoral Regulator or a Ministry of Department of Central Government; Other companies. Comments have been received by the Ministry of Corporate Affairs but the same has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not brought into existence either in the same text or with modifications. If the Rules for the same is brought in then the same may be taken into account for maintaining cost records and for the conduct of cost audit. - Reply By Balasubramanian Natarajan as = Thanks for contributing this very useful and concise article Dated: 16-6-2014 Reply By MARIAPPAN GOVINDARAJAN as = Thank You, Sir, Regards, M. Govindarajan Dated: 16-6-2014 - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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