Cost Accounting Record Rules (CARRs)....

CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114225 Points)
Replied 10 February 2011

Cost Audit Report Rules

In exercise of the powers conferred by sub-section (4) of section 233B, read with sub-section (1) of section 227 and clause (b) of sub-section (1) of section 642 of the Companies Act, 1956, Central Government has notified Cost Audit Report Rules from time to time. In supersession of the Cost Audit (Report) Rules, 1996, Cost Audit Report Rules, 2001 were notified vide G.S.R. 924(E) dated 27 th December 2001. These rules were further amended in the year 2006 vide The Cost Audit Report (Amendment) Rules, 2006.

Cost Audit Reports are required to be e-filed for every financial year within 180 days from the date of close of its financial year.

To view/download full text of Cost Audit Report Rules, 2001 and the Cost Audit Report (Amendment) Rules, 2006, click here.

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CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114225 Points)
Replied 10 February 2011

General Guidelines

FOR APPOINTMENT OF COST AUDITORS:

Forms Required

Application for obtaining prior approval for appointment of Cost Auditors, in Form 23C as per proforma prescribed by the Companies (Central Governments) General Rules and Forms, 1956 has to be e-filed along with prescribed fees and other documents , for every financial year within 45 days from the date of commencement of its financial year. All the relevant information and guidelines in this regards is available in the MCA portal.

To view/download Form 23C, click here .

Fees

Section 637A of the Companies Act, 1956 empowers the Central Government to accord approval, etc., subject to conditions and to prescribe fees on applications. Sub section 2 of Section 637A, inter alia, provides that every application, which may be made to the Central Government under any provisions of this Act, shall be accompanied by such fee as may be prescribed.

Vide Notification No. GSR 501 (E) dated 6.7.1999 read with Notification No. GSR 578 (E) dated 5.8.1999, the Ministry of Law, Justice & Company Affairs (Department of Company Affairs) has prescribed the application fee as under.

	A	B	C
Company having an authorized capital of	Less than Rs.25 lakh	Rs.25 lakh or more but less than Rs.5 Crores	Rs.5 Crores or more
Amount of fees to be paid	Rs.500	Rs.1000	Rs.2000

Check List
Duly Filled in Form 23C
Challan G.S.R. 7 for requisite fees
Boards Resolution effecting appointment of Cost Auditor
Certificate from Cost Auditor under section 224 of Companies Act.

FOR EXEMPTION FROM COST AUDIT ORDERS:

The exemption from Cost Audit on year-to-year basis is granted in situations arising out of temporary closure of the company and/or its manufacturing facilities, negligible production/activity, etc. Applications for seeking exemption are required to be made to the Central Government, along with fee, as prescribed above. The fee for each year for which approval for exemption is sought may be remitted through demand draft drawn in favour of Pay and Accounts Officer, Ministry of Corporate Affairs, payable at New Delhi. Following documents are required to be furnished along with application for exemption:

Printed or attested true copy of complete Annual Report containing balance sheet and profit and loss account for the year for which exemption is being sought along with copies of the same pertaining to preceding two years.
An affidavit containing full facts of capacity utilization, turnover and financial status of the company such as sick or not, duly signed by two Directors of the company and authenticated by a Notary Public.
A brief note/status report on steps taken by the management for revival of the company and/or the said unit.

FOR WITHDRAWAL OF COST AUDIT ORDERS:

The withdrawal of Cost Audit is considered in case of permanent closure or sale or merger/amalgamation of production activities for the product under reference. Following documents are required to be furnished along with application for withdrawal:

Printed or attested true copy of complete Annual Report containing balance sheet and profit and loss account for the year for which exemption is being sought along with copies of the same pertaining to preceding two years.
An affidavit containing full facts of capacity utilization, turnover and financial status of the company such as sick or not, duly signed by two Directors of the company and authenticated by a Notary Public.
A brief note / status report on steps taken by the management for revival of the company and/or the said unit.
Documentary evidences substantiating closure/winding-up, sale, merger, amalgamation, etc. e.g. Courts order, surrender of licenses, sale of plant and machinery, power disconnection, manpower reduction, etc.

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CMA. CS. Sanjay Gupta ("PROUD TO BE AN INDIAN") (114225 Points)
Replied 10 February 2011

Frequently Asked Questions

What is CARR?

Reply: In exercise of the powers conferred by section 642 (1) read with section 209 (1) (d) of the Companies Act, 1956, the Central Government is prescribes Cost Accounting Record Rules for the maintenance of cost records for various industries/products.
What does it contain?

Reply: It contains the particulars relating to utilisation of material or labour or other item of cost as may be prescribed to include such details in the books of accounts. The broad categories under which the detailed cost records are required are materials, labour, utilities, overheads, depreciation, royalty/technical know-how, research & development expenses, incentives on exports, interest and other borrowing costs, captive consumption, pollution control, inter-company transaction etc. It also contains various proformae to enable the industry to calculate the cost of production and cost of sales effectively.
To whom are they applicable?

Reply: They are applicable to the companies pertaining to any class of companies engaged in the production, processing, manufacturing or mining activities except the small scale industries having their total turnover less than rupees ten crores.
What are the objectives for framing CARR?

Reply: The Cost Accounting Record Rules are sincere efforts to induce the companies to have control over their operations and costs with a view to achieve optimum economics in utilization of resources. These Rules inculcate a system so that such records are maintained under generally accepted cost accounting principles in a systematic way and on a uniform basis among the various companies of an industry. In the absence of any common prescribed Rules, the cost calculated by different companies may not be comparable due to usage of different methods, procedures and practices adopted by various accountants. The cost accounting record rules form the vary basis for compilation of cost audit reports.
What is the criterion for selection of an industry/product?

Reply: Industries covered are selected considering the various factors such as, consumer products and services, products of mass consumption, items crucial for infrastructure development, products where substantial subsidies are granted by government, inputs required by various regulatory authorities on the basis of economic conditions, need to protect the government revenue, etc.
How many CARRs have been notified so far?

Reply: Ministry of Corporate Affairs has so far prescribed 44 Cost Accounting Record Rules for the maintenance of cost records in various industries/products.

Are these Rules modified keeping in pace with technological changes or socio economic needs?

Reply: Yes, the simplification and rationalisation of the existing Cost Accounting Record Rules is done due to the changes in the technological processes over a period of time and perceptional shift in accounting methods and techniques.
How does it differ from the Financial Accounts?

Reply: Under financial accounts, every company is required to maintain the books of accounts under section 209 of the Companies Act, 1956 for all sums of money received and expended by the company, sales and purchases of goods and details of assets and liabilities. This is required to enable the determination of financial status and total profit or loss of the company for the particular period. In cost accounts, the cost records are maintained under section 209 (1) (d) of the Companies Act, 1956 to ascertain the amount incurred on materials, labour and all other heads of expenditure to ascertain the actual cost of the individual product produced or service rendered by the company.
Whether extension of time for submission of Cost Audit Report permissible?

Reply: Under the extant rules, there is no provision for granting extension of time for submission of Cost Audit Report.