Ministry of Corporate Affairs have come out with a number of circulars and notifications in the recent times relating to maintenance of Cost Accounting Records and Cost Audit. These circulars and notifications have not only brought remarkable changes in the applicability of cost accounting and audit rules but have introduced a number of new requirements like obtaining of Cost Compliance Report, filing of reports in XBRL mode, fees for appointment of cost auditor etc.
These announcements and changes have created a lot of perplexity in the minds of the readers regarding the applicability of the revised rules. Moreover, since the onus of compliance has been shifted from the legislator to the company, it becomes even more vital to understand the changes and their implications.
For ease of understanding, we have divided this section into 2 parts –
1. Maintenance of Cost Accounting Records and Filing of Cost Compliance Report
2. Appointment of Cost Auditor and filing of Cost Audit Report
Maintenance of Cost Accounting Records and Filing of Cost Compliance Report
Notification:
The Companies (Cost Accounting Records) Rules, 2011 were notified on 03rd June 2011 vide notification no. G.S.R. 429(E), issued by the Ministry of Corporate Affairs in exercise of the powers conferred by section 642(1)(b) read with section 209(1)(d) of the Companies Act, 1956. These rules are in supersession of all Cost Accounting Record Rules issued so far.
Applicability:
These rules shall apply to every company, including a foreign company as defined under section 591 of the Act which is engaged in the production, processing, manufacturing, or mining activities and which satisfies any one of the following criteria:
a. Aggregate value of net worth as on the last date of the immediately preceding financial year exceeds rupees 5 crores.
b. Aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds rupees 20 crores.
c. Companies whose equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India.
These rules shall not apply to the following class of companies –
1. A company which is a body corporate governed by any special Act.
2. Activities or products covered in any of the following Industry Specific rules:
(a) Cost Accounting Records (Bulk Drugs) Rules, 1974
(b) Cost Accounting Records (Formulations) Rules, 1988
(c) Cost Accounting Records (Fertilizers) Rules, 1993
(d) Cost Accounting Records (Sugar) Rules, 1997
(e) Cost Accounting Records (Industrial Alcohol) Rules, 1997
(f) Cost Accounting Records (Electricity Industry) Rules, 2001
(g) Cost Accounting Records (Petroleum Industry) Rules, 2002
(h) Cost Accounting Records (Telecommunications) Rules, 2002
In supersession of the aforesaid Rules, following industry specific Cost Accounting Records Rules were notified:
a. Cost Accounting Records (Telecommunication Industry) Rules 2011 notified vide GSR 869(E) dated December 7, 2011
b. Cost Accounting Records (Petroleum Industry) Rules 2011 notified vide GSR 870(E) dated December 7, 2011.
c. Cost Accounting Records (Electricity Industry) Rules 2011 notified vide GSR 871(E) dated December 7, 2011.
d. Cost Accounting Records (Sugar Industry) Rules 2011 notified vide GSR 872(E) dated December 7, 2011.
e. Cost Accounting Records (Fertilizer Industry) Rules 2011 notified vide GSR 873(E) dated December 7, 2011.
f. Cost Accounting Records (Pharmaceutical Industry) Rules 2011 notified vide GSR 874(E) dated December 7, 2011.
3. Whole sale of retail trading activities.
4. Banking, financial, leasing, investment, Insurance, education, healthcare, tourism, travel, hospitality, recreation, transport services, business/professional consultancy, IT & IT enabled services, research & development, postal/courier services, etc. unless any of these have been specifically covered under any other Cost Accounting Records Rules.
5. Companies engaged in rendering job work operations or contracting/sub-contracting activities, and are paid only the job work or conversion charges, such as tailoring, baking, repairing, painting, printing, constructing, servicing, etc.
6. Companies engaged in the production, processing, manufacturing or mining activities till such time they commence their commercial operations.
7. Ancillary products/activities of companies incidental to their main operations (i.e. products/activities that do not constitute their main line of business) and wherein the total turnover from the sale of each such ancillary products/activities do not exceed 2% of the total turnover of the company or Rs.20 crores, whichever is lower.
Maintenance of Records:
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• Every company to which The Companies (Cost Accounting Records) Rules, 2011 apply, including all units and branches thereof shall, in respect of each of its financial year commencing on or after the 1st day of April, 2011, keep cost records. |
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• Records to be maintained on regular basis and in such manner that per unit cost can be calculated or every financial year on monthly/quarterly/half-yearly/annual basis. |
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• Records to be maintained in accordance with cost accounting standards and principles issued by ICWAI. |
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• Cost records to be reconciled with audited financial statements. |
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• All Cost records and statements to be maintained for at least 8 years |
Filing of Compliance Report:
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Form of Compliance Report |
Compliance Report (along with annexure), certified by a Cost Auditor to be submitted to the Central Government for each FY starting from 01.04.2011 in Form A. |
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Time Limit for submission |
Within 180 days from close of FY |
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Authentication of Annexure to the Compliance Report |
Annexure to compliance report to be approved by Board before submission to Central Government |
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Penalty |
• For Cost Accountant - Up to Rs. 5000/- • For Company & every officer in default - Rs. 500/- plus Rs. 50 per day in case of continuing default. |
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XBRL Filing |
General Circular No. 8/2012 dated 10th May, 2012 mandated filing Compliance Report in XBRL format for year 2011-12 onwards including overdue reports of previous years. |
Due date for filing under XBRL mode:
As per General Circular No. 8/2012 dated 10.05.2012, MCA had notified that XBRL filing for Cost Compliance Report will be enabled after 30.06.2012 which was modified to 31.07.2012 vide Circular dated 29.06.2012.
Thereafter vide General Circular No. 18/2012 dated 26.07.2012, MCA has further extended the due date to 31.12.2012.
As per the XBRL website maintained by MCA, the Validation Tool for XBRL filing of Compliance Report to MCA is presently under development. Filing can be enabled only after the validation tool is ready.
Format of Compliance Report and Form for filing:
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Form A |
Form B |
Annexure to Form B |
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Form for filing Compliance Report and other documents with the Central Government |
Form of compliance Report |
Annexure to Compliance Report |
APPOINTMENT OF COST AUDITOR AND FILING OF COST AUDIT REPORT:
• Revised procedure notified vide General Circular No. 15/2011 dated 11.04.2011
• Cost Auditor to be Cost Accountant as per Sec 2(1)(b) of CWA, 1959 and holding certificate of practice
• Individual as well as firm can be appointed as cost auditor
• Audit committee to be first point of reference for cost auditor appointment
• Audit Committee to ensure that Cost auditor does not have any disqualifications and should get certificate of independence
• Company to file form 23C within 90 days of commencement of each financial year along with prescribed fees
• Documents to be attached to form 23C -
- Board resolution
- Certificate u/s 224(1-B)
• Form 23C deemed to be approved if no communication received within 30 days. Company to issue formal letter of appointment after 30 days
• Auditor to file form 23D (Intimation of appointment) within 30 days of receipt of appointment letter
• Particulars of Cost Auditor to be given in financial statements each year
• Penalty
- For Cost Accountant - Up to Rs. 5000/-
- For Company & every officer in default - Rs. 500/- plus Rs. 50 per day in case of continuing default.
• This procedure is effective from FY commencing on or after 01.04.2011
The Companies (Cost Audit Report) Rules, 2011:
Notification:
The Companies (Cost Audit Report) Rules, 2011 were notified on 03rd June 2011 vide notification no. G.S.R. 430(E), issued by the Ministry of Corporate Affairs in exercise of the powers conferred by section 642(1)(b) read with section 233B(4) and Section 227(1) of the Companies Act, 1956. These rules are in supersession of the Cost Audit Report Rules, 2001.
Applicability:
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.
Vide order reference number F.NO. 52/26/CAB-2010 dated 30.06.2011 (for FY 10-11) and F.NO. 52/26/CAB-2010 dated 24.01.2012 (for FY 11-12) Central Government has ordered Cost Audit for following class of companies –
a. All Companies to which The Companies (Cost Accounting Records) Rules, 2011 apply, AND
b. Which are engaged in production, processing, manufacturing or mining of products/activities given in table below, AND
c. Wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds rupees 100 crores, OR
d. Wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India.
Products/Activities include intermediate or allied products and articles. Clarification regarding meaning of intermediate/allied products and their examples is given in General Circular No. 67/2011 dated 30.11.2011.
Products/Activities to which cost audit is applicable for FY 10-11
(F.NO. 52/26/CAB-2010 dated 30.06.2011)
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S.No. |
Name of Industry |
Relevant Chapter Heading of the Central Excise Tariff Act, 1985 |
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1. |
Cement |
Chapter 25, 38 and 68 |
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2. |
Tyres & Tubes |
Chapter 40 |
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3. |
Steel |
Chapter 72 and 73 |
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4. |
Paper |
Chapter 47 and 48 |
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5. |
Insecticides |
Chapter 30 |
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6. |
Glass |
Chapter 70 |
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7. |
Paints & Varnishes |
Chapter 32 |
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8. |
Aluminum |
Chapter 76 |
Products/Activities to which cost audit is applicable for FY 11-12
F.NO. 52/26/CAB-2010 dated 24.01.2012
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S.No. |
Name of Industry |
Relevant Chapter Heading of the Central Excise Tariff Act, 1985 |
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1. |
Jute, cotton, silk, woolen or blended fibers/textiles |
Chapters 50 to 63 |
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2. |
Edible oil seeds and Oils (incl.vanaspati) |
Chapters 12 and 15 |
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3. |
Packaged food products |
Chapters 2 to 25 (except Chapters 5, 6, 14, 23 and 24) |
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4. |
Organic & Inorganic Chemicals |
Chapters 28, 29, 32, 38 and 39 |
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5. |
Coal & Lignite |
Chapter 27 |
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6. |
Mining & Metallurgy of ferrous & non-ferrous metals |
Chapters 26 and 74 to 83 (except Chapters 76 and 77) |
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7. |
Tractors & other motor vehicles (incl. automotive components) |
Chapters 84, 85 and 87 |
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8. |
Plantation Products |
Chapters 8, 9, 21 and 40, |
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9. |
Engineering machinery (incl. electrical & electronic products) |
Chapters 84 and 85 |
These rules shall not apply to the following class of companies –
a. Generation of electricity for captive consumption
b. Own manufactured products that are consumed exclusively by the company for the sole purpose of production, processing, manufacturing, or mining of its other product or activities that are subject to cost audit.
c. All units located in SEZs, EPZs, FTZs & 100% EOUs (refer general Circular No. 11/2012 dated 25.05.2012 for more details)
Cost Audit Report:
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Form of Report |
• Cost Audit report to be filed with Central Government in Form I • All Cost records to be duly authenticated by 2 directors and cost auditor • Performance Appraisal Report to be submitted by cost auditor to Board/Audit Committee |
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Time Limit for submission |
• Auditor to submit report to company and Central Government within 180 days of close of financial year |
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Annexure to the Audit Report |
• To be approved by Board of Directors • To be signed by Company Secretary and at least one director or 2 directors in case no company secretary is appointed. |
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Penalty |
• For Cost Accountant - Up to Rs. 5000/- • For Company & every officer in default - Rs. 500/- plus Rs. 50 per day in case of continuing default. |
Filing of Cost Audit Report in XBRL:
Ministry of Corporate Affairs has mandated filing of the Cost Audit Report and Compliance Report from the financial year 2011-12 onwards (including overdue reports relating to any previous year) by using the XBRL taxonomy vide General Circular No. 8/2012 dated 10.5.2012 [as amended on 29.6.2012] and No. 18/2012 dated 26.7.2012. All such companies that are NOT covered under the company specific Cost Audit Orders issued prior to 31.3.2011 and/or under the industry specific Cost Audit Order No. 52/26/CAB-2010 dated 2nd May 2011, 30th June 2011 and 24th January 2012 are not required to file Cost Audit Report. However, companies meeting with the threshold limits as prescribed in the relevant Cost Accounting Records Rules 2011 are required to file Compliance Report in the XBRL format.
Due date for filing Cost Audit and Compliance Report, without additional fees has been notified as 31.12.2012 as per General Circular No. 18/2012 dated 26.07.2012.
The Validation Tool for XBRL filings of Cost Audit & Compliance Report to Ministry Corporate Affairs is enabled now by MCA.
By: S.Dhanapal
Sr. Partner, S Dhanapal & Associates
Practicing Company Secretaries
CAclubindia
