A cost audit is an independent examination of the cost accounting records of a company to which section 148 of the Companies Act, 2013 applies. Only a Cost Accountant in practice may be appointed as cost auditor. The audit results in a cost audit report in Form CRA-3 addressed to the Board of Directors.
Scope of service
- Examination of cost records maintained under Rule 5 and Form CRA-1
- Verification of cost statements, product and service-wise cost sheets and reconciliation with financial accounts
- Assessment of compliance with Cost Accounting Standards (CAS) and Generally Accepted Cost Accounting Principles
- Reporting in Form CRA-3 with Annexure, including abridged cost statements and performance indicators
- Qualifications, observations and suggestions for the Board
Regulatory framework
- Companies Act, 2013 — section 148(2) and 148(3) (appointment of a Cost Accountant in practice), 148(6) (report submission)
- Companies (Cost Records and Audit) Rules, 2014 — Rules 3, 4, 5 and 6; Forms CRA-1 to CRA-4
- Applicability thresholds (Rule 4): regulated sectors — overall turnover of ₹50 crore or more and turnover of individual product or service of ₹25 crore or more; non-regulated sectors — ₹100 crore and ₹35 crore respectively
- Appointment intimation to the Central Government in Form CRA-2; filing of the report by the company in Form CRA-4 within 30 days of receipt
- Cost Accounting Standards and Cost Auditing Standards issued by The Institute of Cost Accountants of India
Typical professional activities
- Applicability review based on CETA headings and turnover
- Audit planning, risk assessment and audit programme
- Review of material, conversion, utility and overhead cost accumulation
- Capacity, yield and abnormal cost analysis
- Reconciliation of cost and financial profit
- Preparation of the CRA-3 report and XBRL support for CRA-4 filing
Applicable industries
- Manufacturing
- Automobile & Auto Components
- Engineering
- Pharmaceuticals
- Infrastructure
- Sugar & Agro Industries
Relevant articles and resources
- CAS-2: capacity determination and the cost of idle capacity
- CAS-4: cost of production for captive consumption
- CAS-6: measuring material cost
- CAS-7: employee cost in product costing
- Knowledge Centre: Cost Accounting
Frequently asked questions
Which companies need a cost audit?
A company engaged in a product or service listed in the Companies (Cost Records and Audit) Rules, 2014 needs a cost audit when, in the preceding financial year, overall turnover was ₹50 crore or more and the individual product turnover ₹25 crore or more (regulated sectors), or ₹100 crore and ₹35 crore (non-regulated sectors).
Who can be appointed as cost auditor?
Only a Cost Accountant in practice, or a firm of Cost Accountants, may be appointed as cost auditor under section 148(3) of the Companies Act, 2013. The company's statutory auditor cannot be its cost auditor.
What is the deadline for the cost audit report?
The cost auditor submits the report in Form CRA-3 to the Board within 180 days from the end of the financial year. The company files it with the Central Government in Form CRA-4 within 30 days of receiving it.
Are MSMEs exempt from cost audit?
Rule 4(3) exempts companies classified as micro or small enterprises under the MSMED Act, 2006, among other exemptions. Medium enterprises are not exempt on that ground.
The information on this page describes the nature of the service. It is not advice on any specific matter. See the disclaimer.