Important Provisions in Companies Act 2013 regarding Cost Records & Audit Rules

Slide Note

In-depth analysis of key provisions in the Companies Act 2013 related to Cost Records & Audit Rules, including the procedure for Cost Auditor appointment, qualifications, disqualifications, related party restrictions, rotation of auditors, filing procedures, and penal provisions. The presentation by CMA Harshad Deshpande covers crucial aspects for practicing Cost Accountants, highlighting the significance of compliance with the regulatory framework.

shel_756 Follow

Uploaded on Mar 04, 2025 | 0 Views

Download Presentation

Please find below an Image/Link to download the presentation.

The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.

You are allowed to download the files provided on this website for personal or commercial use, subject to the condition that they are used lawfully. All files are the property of their respective owners.

Download Presentation

The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author.

E N D

Presentation Transcript

Companies (Cost Records & Audit) Rules -: Presentation on :- By: CMA Harshad Deshpande, Practicing Cost Accountant M.com, ACMA, CS, CISA(USA),CIMA(UK)

Important Provisions in The Companies Act 2013 w.r.t. Cost Records & Audit Rules 2014 Procedure for Appointment of Cost Auditors Qualifications & Disqualifications of Cost Auditor Auditor Not to Render Certain Services RelatedParty w.r.t. Cost Auditor or Firm of Cost Auditor Rotation of Cost Auditors Procedure for Filing of Cost Audit Report Penal Provisions 2

KEY DEFINITIONS 3

Companies Act 2013 Companies Act 1956 Books of Accounts books of account includes records maintained in respect of (i) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place; (ii) all sales and purchases of goods and services by the company; (iii) the assets and liabilities of the company; and (iv) the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified section; No Definitionprescribed. under that Comments New Definition. 4

Companies Act 2013 Companies Act 1956 Cost Accountant cost accountant means a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959 No Definitionprescribed. Comments Definition is not specified in Companies Act, 1956. Chartered Accountant gets defined under Sec. 10GD. 5

Companies Act 2013 Companies Act 1956 Relative relative , with reference to any person,means any one who is relatedto another,if (i) they are members of a Hindu Undivided Family; (ii)they are husbandandwife; or (iii) one person is related to the other in such manner as may be prescribed; Relative "RELATIVE , A person shall be deemed to be a relative of another, if, and only if, (a)they are members of a Hindu undivided family ; or (b) they are husbandand wife ; or (c) the one is related to the other in the manner indicatedin Schedule IA. Comments No change. 6

Companies Act 2013 Companies Act 1956 No Definitionprescribed. Turnover turnover means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financialyear; Comments New Definition. 7

IMPORTANT PROVISIONS W.R.T. COST RECORDS & AUDIT RULES 2014 By: CMA Harshad Deshpande, M.com, ACMA, CS, CISA(USA),CIMA(UK) 8

Procedure for Appointment of Cost Auditors Companies Act 2013 : Sec. 148 (3) The audit under sub-section (2) shall be conducted by a Cost Accountant in practice who shall be appointed by the Board on such remuneration as may be determined by the members in such manner as may be prescribed: Provided that no person appointed under section 139 as an auditor of the company shall be appointed for conductingthe audit of cost records: Provided further that the auditor conducting the cost audit shall comply with the cost auditing standards. 9

Procedure for Appointment of Cost Auditors Companies Act 2013 : The Companies(Audit and Auditors) Rules, 2014 : Rule 14 For the purpose of sub-section (3) of section 148 (a) in the case of companies which are required to constitute an audit committee- (i) the Board shall appoint an individual, who is a cost accountant in practice, or a firm of cost accountants in practice, as cost auditor on the recommendations of the Audit committee, which shall also recommend remuneration for such cost auditor; (ii) the remuneration recommended by the Audit Committee under (i) shall be considered and approved by the Board of Directors and ratified subsequently by the shareholders; (b) in the case of other companies which are not required to constitute an audit committee, the Board shall appoint an individual who is a cost accountant in practice or a firm of cost accountants in practice as cost auditor and the remuneration of such cost auditor shall be ratified by shareholders subsequently. 10

Procedure for Appointment of Cost Auditors Companies Act 2013 : The Companies(Cost Records &) Rules,2014 : Rule 6 (2) Every company referred to in sub-rule (1) shall inform the cost auditor concerned of his or its appointment as such and file a notice of such appointment with the Central Government within a period of thirty days of the Board meeting in which such appointment is made or within a period of one hundred and eighty days of the commencement of the financial year, whichever is earlier, through electronic mode, in form CRA-2, alongwith the fee as specified in Companies (Registration Offices and Fees) Rules, 2014. 11

Procedurefor Appointmentof Cost Auditors The Companies (Cost Records & Audit Rules 2014 as Amended on 31st December 2014 The Remuneration is to be Ratified by the Members. Ratification of the Cost Auditor s Remuneration will be done subsequently at the AGM. Cost Audit Mechanism2011 The Remuneration of the Cost Auditor was Approved andFinalized by BOD. No requirement for any Ratification by Members. As the Remuneration will be ratified by the AGM, gives a better Profession and will create some public awareness about the Mechanism of Cost Records& Cost Audit. Company to File Form CRA-2 (Notice of Appointment of Cost Auditor) with Central Govt. CRA-2 to be filed within 30 Days from date of BOD Meeting or 180 Days from beginning of FY , whichever is earlier . visibility to the Company to get approval from Central Govt. for Appointment of Cost Auditor vide Form 23C. Upon approval Cost Auditor to inform about his appointment & acceptance to the Central Governmentvide Form 23D. 12

Procedurefor Appointmentof Cost Auditors The Companies (Cost Records & Audit Rules 2014 as Amended on 31st December 2014 No requirement of Prior Approval from Central Government for Appointment of Cost Auditor . No onus on Cost Auditor to inform Govt. about his appointment Cost Audit Mechanism2011 Prior appointment of Cost Auditor Approval was required for Cost Auditor was cast a responsibility to inform Govt. his acceptance of Cost Audit Assignment. Overall time line stipulated. Stricter Time Line for Notice to the Central Government about Appointment of Cost Auditor . of 180 days was 13

Qualifications & Disqualificationsof Cost Auditor Companies Act 2013 : Sec. 148 (5) The qualifications, disqualifications, rights, duties and obligations applicable to auditors under this Chapter shall, so far as may be applicable, apply to a cost auditor appointed under this section and it shall be the duty of the company to give all assistance and facilities to the cost auditor appointed under this section for auditing the cost records of the company: Provided that the report on the audit of cost records shall be submitted by the cost accountant in practice to the Board of Directors of the company. 14

Qualifications & Disqualificationsof Cost Auditor Companies Act 2013 : Sec. 141 Eligibility, Qualifications, Disqualifications of Auditors (1)A person shall be eligible for appointment as an auditor of a company only if he is a chartered accountant: Provided that a firm whereof majority of partners practicing in India are qualified for appointmentas aforesaid may be appointed by its firm name to be auditor of a company. (2) Where a firm including a limited liability partnership is appointed as an auditor of a company, only the partners who are chartered accountants shall be authorised to act and sign on behalf of the firm. (3) The following persons shall not be eligible for appointment as an auditor of a company, namely: (a) a body corporate other than a limited liability partnership registered under the Limited Liability PartnershipAct, 2008; (b) an officer or employee of company; (c) a person who is a partner, or who is in the employment, of an officer or employee of the company; (d) a personwho, or his relative or partner (i) is holding any security of or interest in the company or its subsidiary, or of its holding or associate company or a subsidiaryof such holding company: Provided that the relative may hold security or interest in the company of face value not exceedingone thousand rupees or such sum as may be prescribed; 15

Qualifications & Disqualificationsof Cost Auditor Companies Act 2013 : Sec. 141 Eligibility, Qualifications, Disqualificationsof Auditors (ii) is indebted to the company, or its subsidiary, or its holding or associate company or a subsidiaryof such holdingcompany, in excess of such amount as may be prescribed; or (iii) has given a guarantee or provided any security in connection with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate company or a subsidiaryof such holdingcompany, for such amount as may be prescribed; (e) a person or a firm who, whether directly or indirectly, has business relationship with the company, or its subsidiary, or its holding or associate company or subsidiary of such holding company or associatecompany of such nature as may be prescribed; (f) a person whose relative is a director or is in the employment of the company as a director or key managerialpersonnel; (g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holdingappointmentas auditor of more than twentycompanies; (h) a person who has been convicted by a court of an offence involving fraud and a period of ten years has not elapsedfrom the date of such conviction; (i) any person whose subsidiary or associate company or any other form of entity, is engaged as on the date of appointment in consulting and specialised services as provided in section 144. (4) Where a person appointed as an auditor of a company incurs any of the disqualifications mentioned in sub-section (3) after his appointment, he shall vacate his office as such auditor and such vacationshall be deemed to be a casual vacancy in the office of the auditor . 16

Qualifications & Disqualificationsof Cost Auditor Companies Act 2013 : Sec. 144 AuditorNot to RenderCertain Services An auditor appointed under this Act shall provide to the company only such other services as are approved by the Board of Directors or the audit committee, as the case may be, but which shall not include any of the following services (whether such services are rendered directly or indirectlyto the company or its holding company or subsidiarycompany, namely: (a) accounting and book keeping services; (b) internal audit; (c) design and implementation of any financial information system; (d) actuarial services; (e) investment advisory services; (f) investment banking services; (g) rendering of outsourced financial services; (h) management services; and (i) any other kind of servicesas may be prescribed: Provided that an auditor or audit firm who or which has been performing any non audit services on or before the commencement of this Act shall comply with the provisions of this section before the closure of the first financial year after the date of such commencement. Explanation For the purposes of this sub-section, the term directly or indirectly shall include renderingof services by the auditor, (i) in case of auditor being an individual, either himself or through his relative or any other person connected or associated with such individual or through any other entity, whatsoever, in which such individual has significant influence or control, or whose name or trade mark or brand is used by such individual; (ii) in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has significant influence or control, or whose name or trade mark or brand is used by the firm or any of its partners. 17

Clause 141 : Eligibility, Qualificationsand disqualificationsof Auditors (Section 224, 226) The CompaniesAct 2013 A Firm where Majority of Partners are qualified to be appointed as Auditors can now be appointedas Auditor . New Disqualifications are listed in this clause. Limit for max. number of Audit appointmentsis fixed to 20 companies. Companies Act 1956 A Firm where All the Partners are qualified to be appointed appointedas Auditor . as Auditors can be Limit appointments is 20 companies out of which only 10 can have paid-up share capital of more than Rs. 25 Lakhs. The provision was not applicable to private companies. for max. number of Audit Auditor can not provided below mentioned services to the company (Clause144) (a) accounting and book keeping services (b) internal audit (c) design and implementation of any financial information system (d) actuarial services (e) investment advisory services (f) investment banking services (g) rendering of outsourced financial services (h) management services and (i) any other kindof services as may be prescribed. 18

Clause 144 : Auditors not to rendercertain services (New Section) The CompaniesAct 2013 A prohibitive list of Services other than Auditing service is prescribed. Transition period is provided to comply with the provisionsof this section. Companies Act 1956 Definition for Directly or Indirectly is a very comprehensive definition and thus merits enough care while determining whether the auditor is in fact providing such prohibited service. Both Auditor and Company to exercise this care. For Individual as Cost Auditor : Himself, Relative, Associate, Significant Influence or Control,name or trademarkor brand For Firm as Cost Auditor : Firm, Partners, Parent, Subsidiary or Associate Entity, Firm or Partner has Significant Influence, name or trademark or brand 19

Rotation of Cost Auditors Companies Act 2013 : Sec. 139 Section 139 of The Companies Act 2013 does not apply to the Cost Auditors and hence Provisions under these section will not be applicable to Cost Auditors. Hence Rotation of the Auditors will not be applicableto Cost Auditors. 20 By: CMA Harshad Deshpande, M.com, ACMA, CS, CISA(USA),CIMA(UK)

Procedure for Filing of Cost Audit Report Companies Act 2013 : Sec. 148 (6) & (7) (6) A company shall within thirty days from the date of receipt of a copy of the cost audit report prepared in pursuance of a direction under sub-section (2) furnish the Central Government with such report along with full information and explanation on every reservation or qualificationcontained therein. (7) If, after considering the cost audit report referred to under this section and the information and explanation furnished by the company under sub-section (6), the Central Government is of the opinion that any further information or explanation is necessary, it may call for such further information and explanation and the company shall furnish the same within such time as may be specified by that Government. 21

Procedure for Filing of Cost Audit Report The Companies(Cost Records & Audit) Rules 2014 : Rule 6 (4) (4) Every cost auditor, who conducts an audit of the cost records of a company, shall submit the cost audit report along with his or its reservations or qualificationsor observations or suggestions,if any, in form CRA-3. (5) Every cost auditor shall forward his report to the Board of Directors of the company within a period of one hundred and eighty days from the closure of the financial year to which the report relates and the Board of directors shall consider and examine such report particularly any reservation or qualification contained therein. 22

Procedure for Filing of Cost Audit Report The Companies(Cost Records & Audit) Rules 2014 : Rule 6 (4) (6) Every company covered under these rules shall, within a period of thirty days from the date of receipt of a copy of the cost audit report, furnish the Central Government with such report alongwith full information and explanation on every reservation or qualification contained therein, in form CRA-4 alongwith fees specified in the Companies (Registration Offices and Fees) Rules, 2014. 23

Procedurefor Filling of Cost Auditor Report The Companies (Cost Records & Audit Rules 2014 as Amended on 31st December 2014 Cost Auditor to submit Cost Audit Report to the BOD within 180 days from the end of the Financial Year. Company to submit the report to Central Government within 30 days from receipt of the report. Cost Audit Mechanism2011 Cost Auditor to submit the Cost Audit Report to the Central Government with 180 days from the end of the Financial Year Cost Auditor to send a Copy of the Cost Audit Report to the BOD. Cost Auditor to submit Cost Audit Report in form CRA-3 Company to submit Cost Audit Report along with full explanation & information on every reservationor qualificationin form CRA-4. Cost Audit Report Form defined for submissionof report to Central Govt. No such provisionin earliermechanism. Onus for submission of Cost Audit Report to Governmentis on Company. Effective Time Available for submission of Cost Audit Report to Govt. is 210 Days. Onus for submission of Cost Audit Report to Government is on Cost Auditor . Effective Time Available for submission of Cost Audit Reportto Govt. is 180 Days. 24

Penal Provisions Companies Act, 2013 : Sec 148 (8) If any default is made in complying with the provisions of this section, (a) the company and every officer of the company who is in default shall be punishable in the manner as provided in sub-section (1) of section 147; (b) the cost auditor of the company who is in default shall be punishable in the manner as provided in sub-sections (2) to (4) of section 147. 25

Penal Provisions Companies Act, 2013 : Sec 1487 (1) Company & Every Officer of Company (1) If any of the provisions of sections 139 to 146 (both inclusive) is contravened, the company shall be punishable with fine which shall not be less than twenty- five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than ten thousand rupees but which may extend to one lakh rupees, or with both. 26

Penal Provisions Companies Act, 2013 : Sec 1487 (2), (3) & (4) Cost Auditor of the Company (2) If an auditor of a company contravenes any of the provisions of section 139, section 143, section 144 or section 145, the auditor shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees: Provided that if an auditor has contravened such provisions knowingly or wilfully with the intention to deceive the company or its shareholders or creditors or tax authorities, he shall be punishable with imprisonment for a term which may extend to one year and with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees. 27

Penal Provisions Companies Act, 2013 : Sec 1487 (2), (3) & (4) Cost Auditor of the Company (3) Where an auditor has been convicted under sub-section (2), he shall be liable to (i) refund the remuneration received by him to the company;and (ii) pay for damages to the company, statutory bodies or authorities or to any other persons for loss arising out of incorrect or misleading statements of particulars made in his audit report. 28

Penal Provisions Companies Act, 2013 : Sec 1487 (2), (3) & (4) Cost Auditor of the Company (4) The Central Government shall, by notification, specify any statutory body or authority or an officer for ensuring prompt payment of damages to the company or the persons under clause (ii) of sub-section (3) and such body, authority or officer shall after payment of damages to such company or persons file a report with the Central Government in respect of making such damages in such manner as may be specified in the said notification. 29