February 12, 2002
‘7’
GOVERNMENT PROMULGATES COST AUDIT REPORT RULES
The Government in the Department of Company Affairs (DCA) has issued a notification promulgating the Cost Audit Report Rules, in super session of the Cost Audit (Report) Rules, 1996 while protecting action taken under the 1996 Rules. The new rules, which come into force with immediate effect, have been promulgated under 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, and defines Cost Auditor as an auditor directed to conduct an audit under sub-section (1) of Section 233B of the Companies Act. The form prescribed under the Rules means the Form of the Cost Audit Report and includes auditor’s observations and suggestions, annexure and prforma to the Cost Audit Report. It defines report as Cost Audit Report duly audited and signed by the cost auditor in the prescribed form of Coast Audit Report. Product under reference means the product or activity to which the report relates.
These Rules shall apply to every company in respect of which an audit of the cost accountings records has been ordered by the Central Government. The Cost Audit Report,submitted on or after October 1, 2002, irrespective of the financial year of the company to which it relates, shall be in the form prescribed under these rules.
The cost auditor is required to submit the report in terms of prescribed form. He is required to respond to the communication from the Central Government within the 30 days of the receipt of the communication addressed to him regarding any clarification. Time limit for submission of report will be within 180 days from the close of the company’s financial year to which the report relates. Companies are required to make available all material information to the cost auditor within 135 days from the close of the financial year of the company. Besides, companies are required to render all assistance to the cost auditor.
The companies are also required that their Board of Directors must approve all the annexures and performa prescribed for the cost audit report which must be authenticated by the company secretary or in his absence at least one director should sign it on behalf of the company.
Under the Rules, cost auditor is subjected to penalty of Rs. 5000 in case of default. For the companies contravening the provision of Rule 6 or Rule 7 including the persons of the companies such as directors shall be punishable with fine extending to Rs. 5000 and in the event of such contravention continuing with a further fine extending to Rs. 500 for everyday after the first day during which such contravention continues.
The Rules provide for form of Cost Audit Report containing annexure, cost of accounting system, process of manufacture, quantitative details, major input materials components consumed, standard actual consumption of input material per unit, breakup of cost of input materials imported during the year, quantitative information, cost information, salaries and wages, repairs and maintenance, fixed assets register and depreciation, cross block, depreciation and lease rent, overheads, research and development expenses, royalty and know-how charges, quality control expenses, pollution control expenses, non-moving stock, written off stock, physical verification of inventory, sales of product under reference, margin per unit of output, competitive margin against import, value addition and distribution of earning financial position and ratio analysis, capitalization of revenue expenditure, related party transactions, central excise reconciliation for the product, reconciliation of duty paid, profit reconciliation, major input materials consumed, quantitative and cost information, salary and wages.