Companies (Cost Accounting Records and Compliance) Rules, 2011
In respect of Companies engaged in production, procession, manufacturing or mining activity, and falls any one of the following category:
1. Net Worth of Rs. 5 Crores or more;
2. Turnover exceeding Rs. 20 Crores;
3. Listed on any Stock Exchange
are required to maintain Cost Records on regularly basis in such a manner so that is could be possible to calculate per unit cost of production.
It shall be the duty of MD/ Every Director and other officers of the Company to take all reasonable steps to secure Compliance by the Company with the provisions of these rules as he is liable to maintain accounts u/s 209.
Every Company to which these rules apply shall submit a Compliance Report in respect of each financial year commencing from 1st April, 2011 duly certified by the Cost Auditor to Central Government in prescribed form A within 180 days from the end of Financial Year along with other annexures. The annexures must be certified by the Cost Auditor.
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.
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.
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.
Cost Auditors are required to submit Cost Audit Report within 180 days of the end of financial year and also submit performance appraisal report duly authenticated by the Cost Auditor to the Board or Audit Committee in prescribed manner.
All the annexures are required to be certified by the Cost Auditor. It should also be approved by the Board of Directors before submitting to the Central Government by the Cost Auditor. The Annexures shall also be signed by the Company Secretary and at least one Director on behalf of the Company. In absence of Company Secretary, it should be signed by atleast two directors.
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.inportal, in the prescribed Form23C within ninety (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 as amended from time to time and other documents as per existing practice i.e.
(i) Certified copy of the Board Resolution proposing appointment of cost auditor; and
(ii) Copy of the certificate obtained from the cost auditor regarding compliance of section 224(1-B) of the Companies Act, 1956
Is a cost auditor required to give any certificate in respect to his independence and arm's length relationship with the appointing company?
The cost auditor will be required to give a separate certificate to the audit committee in respect to his/its independence and arm's length relationship with the company.
Penal provisions for non-compliance of any of the provisions of the Act regarding cost audit?
Non compliance by Companies
If a Company contravenes any provision of this circular, 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 Section642 read with sub-section (5) and (7) of Section 209 and sub-section (11) of Section 233B of Companies Act, 1956.
Relevant provisions of Section 209 of the Companies Act, 1956 are as follows:
Sub-section (5) of Section 209 provides that if any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own willful act been the cause of any default by the company there under, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:
Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defense to prove that a competent and reliable person was charged with the duty of seeking that those requirements were complied with and was in a position to discharge that duty:
Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed willfully.
Sub-section (6) of Section 209 provides that the persons referred to in sub-section (5) are the following, namely:—
(a) Where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; and
(b) Where the company has neither a managing director nor manager, every director of the company;
Sub-section (7) of Section 209 provides that if any person, not being a person referred to in sub-section (6), having been charged by the managing director, manager or Board of directors, as the case may be, with the duty of seeing that the requirements of this section are complied with makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which my extend to six months, or with fine which may extend to ten thousand rupees, or with both.
Relevant provision of Section 642 of the Companies Act 1956 is as under:
Sub-section (2) of Section 642 provides that any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues.
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 five thousand rupees
Disclosures are required to be made by the Company in respect of cost audit in its Annual Report
The Company is required to disclose full particulars of the cost auditor along with the due date and actual date of filing of the Cost Audit Report by the cost auditor, in its Annual Report for each relevant financial year. Since the notification has made effective from April 1, 2011, companies under cost audit are required to furnish the details in its Annual Report from the financial year 2010-11.
Since the cost audit report of a particular financial year may not have been submitted before publication of the Annual Report, relevant details of due and actual date of filing for the last financial year and the due date of filing for the current year may be published in the Annual Report.
Other procedure a company is required to follow to formalize the appointment of a cost auditor
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.
Format of appointment letter
Sub: Appointment of Cost Auditor for Financial Year 2012-13
We have received your certificate u/s 224(1b) of the Companies Act, 1956 dated……… and your certificate of Independence under para (e) of G.C. No. 15/2011 dated 11th April, 2011
We are pleased to inform you that, subject to approval of Central Government, you are appointed as Cost Auditor of the Company for the Financial year 2012-13 on a yearly audit fee of Rs. …………………… as agreed by you. We have duly filled Form 23C for obtaining approval of Central Government for your appointment as Cost Auditor and a copy of the same is enclosed herewith.
What if Central Government doesn't give its approval within 30 days of submission/ re-submission of the application?
After filing the online application by the Company, the same shall be deemed to be approved by the Central Government, unless contrary is heard within thirty (30) days from the date of filing such application.
However, if within thirty (30) days from the date of filing such application, the Central Government directs the Company to re-submit the said application with such additional information or explanation, as may be specified in that direction, the period of thirty days for deemed approval of the Central Government will be counted from the date of re-submission of Form 23C by the Company
Cost Record Compliance Report and Cost Audit Report to be filled in XBRL Language
MCA‘s Initiative to integrate Financial and Costing Reports
MCA has issued a circular No. 8/2012 on 10th may 2012 making it mandatory on the part of Cost Auditors and Companies to file Cost Audit Reports and Cost Records, Compliance Report in XBRL format.
It is normal practice in Costing to modify the formats to suit the requirement of the organization. Different Cost Accounting Records rules earlier allowed that, also in the current cost accounting record rules discretion is given to the Company to prepare the cost record in the formats, the Company deems fit.
But please note that the Company can prepare cost records/Cost sheets in any format but ultimately these may be required to be mapped to fit in the taxonomy released by ICAI
The Circular issued by MCA is reproduced for reference
Filing of Cost Audit Report (Form-I) and Compliance Report (Form-A) in the extensible Business Reporting Language (XBRL) mode.
General Circular No. 8/2012, dated 10-5-2012
It has been decided by the Ministry of Corporate Affairs to mandate the cost auditors and the companies to file Cost Audit Reports (Form-I) and Compliance Reports (Form-A) for the year 2011-12 onwards (including the overdue reports relating to any previous year) by using the XBRL taxonomy. These reports, required to be filed in the XBRL format, would be based on the Taxonomy on XBRL being developed for the formats (Form-I & Form-A) given in the following Rules:
(i) Companies (Cost Accounting Records) Rules, 2011
(ii) Cost Accounting Records (Telecommunication Industry) Rules, 2011
(iii) Cost Accounting Records (Petroleum Industry) Rules, 2011
(iv) Cost Accounting Records (Electricity Industry) Rules, 2011
(v) Cost Accounting Records (Sugar Industry) Rules, 2011
(vi) Cost Accounting Records (Fertilizer Industry) Rules, 2011
(vii) Cost Accounting Records (Pharmaceutical Industry) Rules, 2011
(viii) Companies (Cost Audit Report) Rules, 2011
2. Hence, all cost auditors and companies, which are liable to file Cost Audit Reports (Form-I) and Compliance Reports (Form-A), are requested to file their reports with the Central Government after 30th June, 2012 in the XBRL mode by which time the relevant taxonomy together with Form-I &, Form-A in XBRL format is likely to be ready and notified.
3. The Institute is requested to circulate this General Circular for the information of all concerned.