Cost Audit Report: Subject-Matter, Rules and Contents

After reading this article you will learn about the Cost Audit Report:- 1. Subject-Matter of the Cost Audit Report 2. Cost Audit (Report) Rules, 2001 3. Form and Contents of the Cost Audit Report.

Subject-Matter of the Cost Audit Report:

The statutory cost audit report is the end result of an audit of the cost accounting records of a company. The cost auditor expresses his opinion, gives his observations and summarizes his work in the form of a cost audit report.

The format of the report including the Annexure and Proforma is prescribed under the Cost Audit Report Rules 2001 (these rules, originally framed in 1968, were revised in 1969, 1971, 1982, 1986, 1996, and 2001).

The Ministry of Finance (Department of Company Affairs), New Delhi, has issued these rules vide its Notification No. G.S.R. 924 (E) dated the 27th December 2001.

Cost Audit (Report) Rules, 2001:

The Rules contain eight basic provisions as under:

(1) Short title and commencement.

(2) Definitions with respect to Act, Cost Auditor, Product under reference, Schedule, etc.

(3) Application — These rules shall apply to every company in respect of which an Audit of the Cost Accounting Records has been ordered by the Central Government under Section 233B(1) of the Companies Act, 1956.

(4) Form of Report — (a) Every Cost Auditor who conducts an Audit of the Cost Accounting Records of the Company should submit his Report in duplicate to the Central Government, in the prescribed form and in accordance with the procedure laid down in the schedule to these Rules and forward a copy of his Report to the Company.

(b) He should give clarifications on the cost audit report within 30 days of the receipt of the communication from the Central Government.

(5) Time limit — He should send his Report to these Authorities within 180 days from the end of the Company’s financial year to which the Cost Audit Report relates.

(6) Cost auditor to be furnished with records — (a) Without prejudice to the powers and duties the Cost Auditor have under Section 233B(4), the Company and every Officer thereof including the persons referred to under Section 209(6) shall make available to the Cost Auditor within 135 days from the end of the financial year such Cost Accounting Records and Cost Statement and other books and papers that would be required for conducting the Cost Audit, and shall render necessary assistance to the Cost Auditor so as to enable him to complete the Cost Audit and submit his Report within the time limit of 180 days.

(7) Penalties — (a) The Cost Auditor failing to comply with the form of report and time limit for submission of report shall be punishable with fine which may extend to Rs. 5,000/-.

(b) The company and every officer of the company including the persons referred to in Section 209(6) of the Act, who is in default and contravenes the provisions under (6) above, shall be punishable with fine which may extend to Rs. 5,000/- and where the contravention is continued, with a further fine which may extend to Rs. 500 for every day after the first day during which period such contravention continues.

(8) Saving of action taken or that may be taken for contravention of the Cost Audit Report Rules, 1996.

The supersession of the Rules of 1996 by the Rules of 2001 shall not affect:

(a) Any right, obligation or liability acquired, accrued or incurred;

(b) Any penalty, forfeiture or punishment incurred in respect of any contravention committed there-under; and

(c) Any investigation, legal proceeding or remedy in respect of any such right, obligation, liability, penalty, etc. as aforesaid and the same that may be instituted, enforced or imposed had the rules of 1996 not been superseded.

Form and Contents of the Cost Audit Report:

The form of the Cost Audit Report is specified in the Rules. The Cost Audit Report is basically a certificate containing five paragraphs on fifteen specific points wherein the Cost Auditor of a Company is required to specify either positively or negatively his impression and independent opinion regarding the Cost Accounting Records, cost accounting system, inventory valuation, budgetary control system, related party transactions, low profitability, break-even point, payments’ default to the Government/Financial Institutions/Banks and their impact, competitive environment, actual exports, export benefits/incentives on export profitability, internal audit, and suggestions in respect of cost control and cost reduction.

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