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The Ministry of Corporate Affairs on 15.10.2019 notified the Companies (Cost Records and Audit) Amendment Rules, 2019 due to the implementation of GST, other procedural changes and consequent revision of connected forms i.e. CRA-1 and CRA-3 as per the Companies Act 2013.

Festive season is on and the costing professionals along with Financial Heads of the organisations are busy in preparation of cost records and finalizing the same for filing the Cost Compliance Reports and Cost Audit reports with MCA.  In the earlier era  i.e  pre 2011, there was a tendency to just prepare the Cost Records in any manner and keep the same with the company as a compliance of section 209(1)(d) or/and prepare Cost Audit Reports (for negligible number of companies) and file the same with MCA in hard copy or pdf formats.

Once the report was filed, the company and the cost auditor used to get relaxed considering the compliance has been done and there would not be any queries from MCA or even from any of the revenue authorities. It was difficult for MCA officers to look into the nitty-gritty of the Cost Audit Reports (filed in pdf) until and unless some specific requirement is there.

But it seems that Ministry has woken up to the call of the urgent requirement of detailed data for informed decision making at various levels of the Government. It is widely said that correct data is the key to success. Considering the same, ICAI-CMA(erstwhile ICWAI) has recently launched  a scheme called as  the “Hiring of professional Cost Accountants (CMAs) engaged in public practice for Scrutiny & Review of Cost Audit Reports, Compliance Reports and Cost Data Analysis”

As mentioned in the letter inviting expression of interest from Practising Cost Accountants,  Ministry of Corporate Affairs  is interested  in carrying out scrutiny and review of Cost Audit Reports & Compliance Reports, data mining & analysis, sectoral analysis, etc. with a view to ensuring high quality of audit & assurance and to suggest industry specific input output norms, efficiency benchmarks, deficiencies, improvement areas.

The focus is on:

a. High quality of Cost Audit

b. Data Mining

c. Sectoral Analysis

so that MCA can guide on:

1. Industry specific input output norms or

2. efficiency benchmarks etc.

Now as the Cost Audit or Cost Compliance Reports will be filed in XBRL, any type of analysis will be just a click away. The CFOs of the organizations and directors signing the reports must ensure the quality of the Cost Compliance Reports or Cost Audit Report as the reports are likely to be analysed for accuracies and authenticity by the team of professionals under the guidance of MCA Officials.

The focus should be on differences being shown in reconciliation statements being filed with MCA like difference in Inventory Valuations, differences in sales or RMC,  Capacity utilisations.

Luckily, till date not even a single Cost Audit Report or Cost Compliance Report for the year 2011-12 has been filed with MCA as the relevant forms have not been uploaded by MCA and XBRL validation tools have also not been released by MCA. So, It is right time for the company to reassess the compliance levels required in the Cost Audit Reports or Cost Compliance Reports and accordingly guide the concerned staff rather than taking it as another simple statutory compliance.

Excerpt of some of the requirements desired by MCA with regard to the review of Cost Audit reports/Cost Compliance Report are given below

1. Each study/examination will be done under the direct supervision & control of an officer of MCA.

2. The Institute, in consultation with the MCA, will prepare detailed guidelines / checklists to help the professional CMAs in thorough scrutiny & review of the cost audit reports and compliance reports and for carrying out data mining & sectoral analysis.

3. The outsourced CMAs will also help in examining / analyzing the replies submitted by the company in response to the letters/notices issued by MCA under the provisions of Companies Act, 1956.

Again I would like to share the very small format which needs to be filled for filing Cost Compliance report:


Net Margin (Profit/Loss) as per Cost Accounts

(In Rupees)

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 Accounts (if any)

Add/Less: Difference in Stock Valuation

Profit/(Loss) as per Financial Accounts


The details of “Add/Less: Difference in Stock Valuation” will be arrived at by computing:


Add: Overvaluation of closing stock in financial accounts


Add: Undervaluation of opening stock in financial accounts


Less: Undervaluation of closing stock in financial accounts


Less:: Overvaluation of opening stock in financial accounts


Segment wise reporting in financials can be correlated with product group wise margins.

Difference in Inventory valuations will be major area of concern to MCA and Revenue Officials

So, the CFOs must try to take the inventory valuations form the cost records so that minimum and justified differences are reported to the Ministry of Corporate Affairs. Ideally, the differences will be due to Net Realisable Value Impact and Excise duty Impact in FG only and there should not be any difference in WIP and RMC valuations.

Please note that Audited Financials and Cost Compliance Certificate incorporating Reconciliation Statement for the year 2011-12  have to be approved by Board of Directors for the very first time and we should be ready to face the questions from MCA and the BOARD on differences in Inventory Valuations reported in Cost Compliance Certificate.

Apart from it, Inventory Valuations have a direct impact on the profitability of the organization. What will happen if Income Tax Authorities ask for the details of the differences in Inventroy Valuations which is reported to the Ministry of Corporate Affairs after approval from the Board of Directors and accept the same as is mentioned in the Cost Records after minor modifications? Going forward, the top management of the organization must look into these aspects related to Income Tax.

One must look at the CAR/CCR from the point of quantitative information. Now the quantitative information for different product group categories will be available from the CAR/CCR only not from the financial audit reports. So, various statutory authorities will definitely go through the Cost Audit Reports/Cost Compliance Reports

By CMA Navneet Kumar Jain



Jitender, Navneet & Co.

Cost Accountants


Email: navneetic@yahoo.com


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Category Audit, Other Articles by - CMA Navneet Kr Jain