Technology upgradation in the government departments has its positive impacts primarily for the supervision purposes. It becomes very easy for the officers to identify the non-compliances and take action so that the provisions of various acts are complied with in letter and spirit.
Many a times, the persons responsible for the compliances of provisions in the corporates do not pay proper attention resulting in non compliance. Earlier it was very difficult to check the non compliances of various provisions with regard to section 148 of the Companies Act relating to maintenance of Cost Records but with the technological advancement and uploading of data in digital formats, now it has become somehow convenient for the officers to track the compliance/non compliance with the section 148 of the Companies Act.
Earlier Cost Audit Branch, Ministry of Corporate Affairs used to issue notices for
a) Non filing of Cost audit Reports.
b) Non appointment of Cost Auditors.
c) Some issues in Cost Audit Reports.
Now for the first time as per our knowledge, the CAB, MCA has issued notices for non-maintenance of cost records stating
"it has been found from our records that your company falls under the ambit of maintenance of Cost Records for the financial year 2017-18 but has not maintained as prescribed by Section 148(1) of the Act read with Rule 3 & 5 of Companies (Cost Records and Audit) Rules, 2014 (Rules) as amended from time to time. Accordingly, sub-section (1) of Section 148 of the Act has been contravened"
The show cause notice seeks explanation for non compliance with section 148 of the Companies Act 2013 with regard to maintenance of Cost Records. It seems that the concerned officers have picked up the data from the Financial Auditors' data or other data to form an opinion and issued notices for non compliances. Please note that the notices have been issued for the year 2017-18 as of now. The notices for other years may be on the way so better it would be to get the data reviewed for checking the application of section 148 of the Companies Act 2013 relating to cost records/cost audit.
The companies need to exercise caution and get compliance made so as to avoid any complicacies later. Gone are the days when we used to think that "Let the notice come, will take care at that point of time" and because of inadequate monitoring systems at ministries level, companies didn't comply with the provisions. Now, it is becoming almost impossible to remain under the carpet after non compliance as the concerned ministries have access to all the information being filed by corporates in digital forms and analysis can be done at a click of a mouse.
With the digitization in fast gear in India, the HSN codewise data from GST filings, financials and the declaration in the Statutory auditor's Report and declarations in the Directors Responsibility Statement (Directors' Report) may be generated in the requisite form for monitoring purposes.
A combination of the information generated from all or some of the documents stated above may enable the officers to draw the conclusions with regard to the maintenance of cost records.
The Institute of Cost Accountants of India has issued a guidance note on the "RESPONSIBILITY OF DIRECTORS: AS REGARDS MAINTENANCE OF COST RECORDS" in early 2019. The guidance note aims to provide the guidance to the company to obtain an Assurance Certificate for Maintenance of Cost Records before incorporating the disclosure with regard to the Cost Records in Director's Report
Ministry of Corporate Affairs, Government of India has notified the amendment in the Companies (Accounts) Rules, 2014 which mandates the directors to report on requirement and the maintenance of cost records under section 148 of the Companies Act 2013.
In the Companies (Accounts) Rules, 2014, in rule 8, (i) In sub-rule (5), after clause (viii) the following clauses shall be inserted, namely: -
"(ix) a disclosure, as to whether maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013, is required by the Company and accordingly such accounts and records are made and maintained,
The disclosure with regard to cost records is in two parts
1) whether maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013, is required by the Company
2) Whether accounts and records have been made and maintained accordingly (please note that for this companies have to refer to CRA-1 issued by the MCA vide notification no 425 dated 30 June, 2014 and recently amended vide notification GSR no 1498 dated 7 Dec, 2017
The maintenance of accounts/cost records is the responsibility of the management of the company. It is the top management of company which has to ensure that it is complying with the provision of the Companies Act. Penal provisions are applicable on the company and every officer of the company who is in default.
Template of the notice issued by the CAB, MCA, GOI is given below:
Show Cause Notice for non-compliance of provisions of Section 148 of the Companies Act, 2013
WHEREAS, it has been found from our records that your company falls under the ambit of maintenance of Cost Records for the financial year 2017-18 but has not maintained as prescribed by Section 148(1) of the Act read with Rule 3 & 5 of Companies (Cost Records and Audit) Rules, 2014 (Rules) as amended from time to time. Accordingly, sub-section (1) of Section 148 of the Act has been contravened.
2. AND WHEREAS, as per sub-section (8) of Section 148 of the Act, "If any default is made in complying with the provisions of this section,-
(a) the company and every officer of the company who is in default shall be punishable in the manner as provided in sub-section (1) of section 147;
3. NOW, therefore the addressees (being the company/its officers in default as the case may be) are called upon to show cause within 30 days from the date of this show cause notice, as to why no penal action as contemplated under Section 148(8)(a) read with Section 147(1) of the Act be initiated for contravention of Section 148(1) of the Act read with Rule 3 & 5 of the Rules.
4. It may be noted that in case you fail to reply within the period as stipulated above, it will be presumed that you have nothing to say in the matter and penal action will be initiated against the company and all its officers who are in default, without any further reference in the matter.
5. Whereas, your attention is also drawn towards Section 441 of the Act which prescribes compounding of certain offences.
6. Hence, in terms of the provision of Section 20 of the Act, the notice is hereby being served on the company and all officers of the company who are in default at the registered office of the company provided by the company on MCA Portal. The company is requested to bring the notice to the knowledge of all the officers who are in default, immediately upon its receipt.
1. M/s. ABC LTD
You are requested to furnish your company explanation/response at the link
Way Forward to avoid any notices in the future due to non-compliance of section 148 of the Companies Act
The companies not covered under cost audit should seek an yearly opinion with regard to the applicability of cost records under section 148 and if applicable, immediately start the system of maintenance of cost records as per CRA-1 so that voluntary Assurance Certificate as per guidance note issued by Institute of Cost Accountants of India for Maintenance of Cost Records could be obtained before submission of cost record maintenance disclosure in the Director's Report.
The specimen of the Assurance Certificate for Maintenance of Cost Records is given as annexure.
The Financial Auditors/Directors may review the applicability of Cost Records and Cost Audit every year and better it would be if a certificate is taken from Practicing Cost Accountant with regard to the applicability of section 148 of the Companies Act so as to avoid any adverse action at later stages as has been seen in the recent notices.
The companies should follow the guidance note on the "RESPONSIBILITY OF DIRECTORS: AS REGARDS MAINTENANCE OF COST RECORDS"
The explanations given above are based on our understanding of the provisions and authorities/any other person may have different point of view. Readers are requested to check all the relevant provisions and feel free to contact us
Form of Assurance Certificate for Maintenance of Cost Records
[For Maintenance of Cost Records as required under Section148 (1) of Companies Act, 2013]
I/We, _____________________ , having been appointed as Cost Accountant(s), to provide Assurance certificate for Maintenance of Cost Records as per Section 148 (1) of The Companies Act, 2013 (18 of 2013), by/of …………………..……………….……(mention name of the company) [CIN : ……………………..…] having its registered office at ………………………. (mention registered office address of the company) (hereinafter referred to as the company), have examined the Cost Records and other relevant records of the company for the year ________________ certify as under:
1. I/We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of this Assurance Certificate.
2. in my/our opinion, proper cost records, as per The Companies (Cost Records and Audit) rules, 2014 prescribed under sub-section (1) of section 148 of the Companies Act, 2013, have been maintained by the company so as to give a true and fair view of the cost of production/service, cost of sales and margin of the products/services of the company covered under the said rules.
3. In my/our opinion, detailed unit-wise and product/service-wise cost statements and schedules thereto in respect of the products/services are maintained by the company.
4. In my/our opinion, the said books and records give the information required by the Companies Act, 2013 in the manner so required.
5. In my/our opinion, the said books and records are in conformity with the generally accepted cost accounting principles and cost accounting standards issued by The Institute of Cost Accountants of India to the extent these are found to be relevant and applicable.
6. Annexures A & B, attached to this certificate give the summary information based on the Cost Records maintained by the company.
B. Observations & Suggestions
My/Our Observations & Suggestions based on our scrutiny of Cost Records maintained by the company are summarized below.
Name of the Cost Accountant(s):
Annexure A & B will be company specific
- Annexure A contains Various Cost Accounting Principles followed by the company
- Annexure B comprises of statements of Quantity, Revenue, Product Profitability and Costing Reconciliation.
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Disclaimer: The view expressed here are purely personal and based on our interpretation of the law. The author requests the readers to go through the relevant provisions and documents like guidance notes released by the Institute of Cost Accountants of India