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The procedure has been modified by the Cost Audit Branch of the Ministry of Corporate Affairs vide General Circular No. 15/2011 dated 11th April 2011.

1. Difference between new and old procedures of Appointment of Cost Auditor by Companies:

The Company would be required to file Form 23C with the Central Government in the same manner as in the old procedure. However, under the present procedure, the prior approval would be deemed to have been granted if the Central Government does not raise any query within 30 days of filing of Form 23C.

In case the Central Government raises any query within the period of 30 days, the company would be required to clarify the issues and re-submit the Form 23C. The period of 30 days, in this case, would run from the date of resubmission of Form 23C.

2. Qualifications of a cost auditor:

A Cost Accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice (COP) under sub-section (1) of section 6 of Cost and Works Accountants Act, 1959 and including a Firm of Cost Accountants can be appointed by a Company as cost auditor.

However, the cost accountant or partners of a firm of cost accountant should be in whole-time practice and not holding any other employment.

3. Competent authority in case of Companies:

Under the revised procedure, the first point of reference will be the Audit Committee to ensure that the cost auditor is free from any disqualification as specified under section 233B (5) read with section 224 and sub-section (3) or sub-section (4) of section 226 of the Companies Act, 1956. The Audit Committee should also ensure that the cost auditor is independent and is at arm's length relationship with the company.

After ascertaining the eligibility, the Audit Committee will recommend to the Board of Directors for appointment of the Cost Auditor.

As per provisions of section 233B (2) of Companies Act, 1956, the Board of Directors of a Company can appoint a cost auditor after obtaining prior approval of the Central Government.

In those companies where constitution of an Audit Committee is not required by law, the functions of the "Audit Committee" as per the procedure will be discharged by the "Board of Directors".

4. Limits to Cost Audits:

Section 224 (1B) imposes a ceiling on the numbers of audits that an auditor or firm of auditors can undertake. Accordingly, the ceiling on the number of cost audits is as follows:

In case a firm of cost accountants: 20 companies (other than private companies) for every such partner of the firm who is not in full time employment. Not more than ten out of twenty companies should have a paid up share capital of Rs. 25 lakhs or more.

In case of individual cost accountant: 20 companies (other than private companies) of which not more than 10 should have a paid up share capital of Rs. 25 lakhs or more.

5. Procedure to be followed by a company in respect of appointment of cost auditor:

The Company is required to e-file its application with the Central Government on www.mca.gov.in portal, in the prescribed Form 23C within 90 days from the date of commencement of each financial year, along with the prescribed fee as per the Companies (Fees on Application) Rules, 1999 and other documents i.e.:

Certified copy of the Board Resolution proposing appointment of cost auditor.

Copy of the certificate obtained from the cost auditor regarding compliance of section 224(1-B) of the Companies Act, 1956.

After obtaining approval of the Central Government (deemed or otherwise), the Company will be required to issue a formal letter of appointment to the cost auditor.

The Cost Auditor is required to inform the Central Government within 30 days of receipt of formal letter of appointment from the Company. Such intimation is to be done in prescribed Form 23D along with a copy of such appointment letter.

6. Penal provisions for non-compliance of any of the provisions of the Act regarding cost audit:

Non compliance by Companies:

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-section (5) and (7) of Section 209 and sub-section (11) of Section 233B of Companies Act, 1956 with imprisonment for a term which may extend to six months, or with fine which may extend to Rs. 10,000, or with both, provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed willfully.

Non compliance by Cost Auditor:

If default is made by the cost auditor in complying with the aforesaid provisions, he shall be punishable with fine, which may extend to Rs. 5,000.


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