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Cost Audit is the process for verifying the cost allocation of each product or Services comprising of labor cost, manufacturing cost or any other item of cost as applicable. Cost Audit is a methodical and reliable verification of the accounts and records, to maintain the accounts according to the Cost Accounting Standards.
The ICWAI (The Institute of Cost Accountant of India) defines Cost Audit as a
“system of audit introduced by the government of India for the review, examination, and appraisal of the cost accounting records and attendant information required to be maintained by specified industries.”
The main purpose of this audit is to give proper, relevant and accurate information to the Management to assist in taking the important decision. In this Audit, a report is submitted suggesting certain ways to reduce the cost of production, guidance to the management for increasing the efficiency in the manufacturing unit, any loss making unit and to make the improvement in the accounting plan.
Government may appoint the cost auditor to conduct audit wherever required:
a. If the Government feels to carry out the audit as per the Companies Act, 2013
b. To analyses the certain amount of cost if the government is approaching certain financial help.
c. To fix a certain amount of cost while preparing for the tender.
Sometimes, Labor Tribunals may direct the cost auditor to settle the disputes for more wages, bonuses, shares in profit, etc. The Income tax department may direct the audit of cost account to get the correct profit.
As per the Companies Act, 2013 there are certain classes of Companies that need to carry the audit to get the accounts audited.
As per the statutory rules and Act it is mandatory for the Company to carry out the Audit.
Under the Companies Act, 2013, it has categorized the Company industrial activity into two parts i.e.
For the readers reference the link has been mentioned for detailed industry specification, if company fulfill the criteria which are mentioned below need to appoint the Cost Auditor of the Company.
The following Companies are not required to conduct the cost audit in India:
The term “Captive Generating Plant” shall have the same meaning as mentioned in rule 3 of the Electricity Rules, 2005.”
A cost auditor is required to submit his audit report along with his/ her qualifications, reservations, observations or suggestions if any, in form CRA-3 to Board of Directors of the Company within 180 days from the closure of financial year to which the report relates.
The Audit Report shall be filed with the Central Government within 30 days from the date of receipt of the Audit Report.
Any non- compliance made under this Audit, the Company and every officer of the Company who is in default shall be punishable as mentioned under: