carr 2014 navi mumbai 200714

Cost Records & Cost Audit RulesCost Records & Cost Audit Rules

A Comparison between

2011 & 2014

Strictly Confidential. For private circulation only

www.kishorebhatia.com

Breaking News

MCA has formed Expert Committee which will submit

Report within three months


expert committee

Snapshot

Preamble

Applicability

Maintenance of Records

Cost Audit

EXCLUSIONS from DISCUSSION


EXCLUSIONS from DISCUSSION

Why the change

Who is responsible

What will happen to members and students

How to oppose/fight back

How do I get refund of 23C Filing Fee

Preamble


Preamble

As we are all aware, Cost Records & Cost Audit were

introduced in mid 60s

Over the years, 44 industries were in ambit

In 2008, an Expert Group constituted recommended

widespread applicability of Cost Records & Cost Audit

In 2011, these recommendations were implemented &


In 2011, these recommendations were implemented &

Cost Accounting & Cost Audit Rules were revised covering

most industries in purview of Cost Compliance

Progressively Cost Audit was ordered for many of these

Most importantly, these also addressed industries

concern of confidentiality

Draft Rules were issued in November, 2013

These combined Cost Accounting & Cost Audit Rules

into one

New Cost Accounting & Cost Audit Rules issued by

MCA on 30th June, 2014 now gazzetted

2014


MCA on 30th June, 2014 now gazzetted

Applicable from FY commencing on or after 1st

April, 2014

Cost Compliance Report abolished

Applicability


Applicability

Cost Records -2011

All companies including foreign companies (u/s 591 ofCompanies Act) from FY 2011-12 which are engaged in:

- Production or

- Processing or

- Manufacturing or

- Mining activities

AND


AND

- Net worth for preceding year exceeds INR 5 crore or

- Turnover for preceding year exceeds INR 20 crore or

- Debt or equity is listed or in process of listing on any stockexchange

Unless excluded, CCARR compliance is mandatory even if costaudit is applicable, i.e. Need to maintain records as per newCCARR & also file Compliance Report with MCA

Exclusions - 2011

Company which is a body corporate covered under any special Act(e.g. Banking & Insurance not covered)

As per clarification by MCA:

- Wholesale or Retail trading activities

- Banking, Financial, Leasing, Investment, Insurance

- Education, Healthcare, Tourism, Travel, Hospitality, Recreation

- Transport services, Business/Professional Consultancy


- Transport services, Business/Professional Consultancy

- IT & IT Enabled Schemes, R & D, postal/courier services, etc

Companies engaged solely in job work operations or contracting/sub-contracting activities

Ancillary products/activities where total turnover from the sale ofeach such ancillary products/activities does not exceed lower of

- 2% of total turnover, or

- Rs. 20 crores

Cost Audit - 2011

MCA issued 3 Cost Audit Orders: 2nd May3rd May as amended on 30th June24th January, 2012

These were superseded by order of 6th November, 2012. This Order was well structured and clearly spelt out which product /activity were covered


The threshold limits were Rs 100 cr turnover, except for:

- Bulk Drugs & Formulations since replaced by Pharmaceutical Rules

- Fertilizers

- Sugar & Industrial Alcohol since replaced by Sugar Rules

- Electricity Industry

- Petroleum Industry

- Telecommunications

These had Rs 20 cr threshold

Applicability - 2014

All companies including foreign companies (u/s 42 of

Section 2 of Companies Act, 2013) will be required to

include Cost Records in their books of accounts if they are

covered under these rules

Category Description


A Strategic Sectors

B Industry Regulated by a Sectoral Regulator or a Ministry or

Department of Central Government

C Areas involving Public Interest

D Engaged in Production, import and supply or trading of

certain medical devices

Applicability


Applicability

A - Companies Engaged in the Production

of following goods in Strategic Sectors

Applicability

A Companies Engaged in the Production of following

goods in Strategic Sectors

machinery and mechanical appliances used in defence, space

and atomic energy sectors excluding any ancillary item or items;

Explanation: - For the purposes of this sub-clause, any company

which is engaged in any item or items supplied exclusively for


which is engaged in any item or items supplied exclusively for

use under this clause, shall be deemed to be covered under

these rules

turbo jets and turbo propellers;

arms and ammunitions;

propellant powders; prepared explosives, (other than propellant

powders); safety fuses; detonating fuses; percussion or

detonating caps; igniters; electric detonators;

Applicability

radar apparatus, radio navigational aid apparatus and radio

remote control apparatus;

tanks and other armoured fighting vehicles, motorised, whether

or not fitted with weapons and parts of such vehicles, that are

funded (investment made in the company) to the extent of 90%

or more by the Government or Government Agencies;


or more by the Government or Government Agencies;

Applicability

Net worth or Turnover Criteria

Particulars (Any one) Cost Records Cost Audit

Net worth of the

Company or INR 500 crores or more

Turnover


Note Turnover and net worth for which year to be

considered has not been defined

Turnover

Applicability

B - Companies Engaged in an Industry


B - Companies Engaged in an Industry

regulated by a Sectoral Regulator or a

Ministry or Department of Central

Government

Applicability

B Companies Engaged in an Industry regulated by a

Sectoral Regulator or a Ministry or Department of

Central Government

Note Here the Rules only specify Companies engaged in the

Industry and dont mention Manufacturing/Production

Port services of stevedoring, pilotage, hauling, mooring, re-


Port services of stevedoring, pilotage, hauling, mooring, re-

mooring, hooking, measuring, loading and unloading services

rendered by a Port in relation to a vessel or goods regulated by

the Tariff Authority for Major Ports under section 111 of the

Major Port Trusts Act, 1963(38 of 1963);

Aeronautical services of air traffic management, aircraft

operations, ground safety services, ground handling, cargo

facilities and supplying fuel rendered by airports and regulated

Applicability

by the Airports Economic Regulatory Authority under the

Airports Economic Regulatory Authority of India Act, 2008 (27

of 2008);

Telecommunication services made available to users by means

of any transmission or reception of signs, signals, writing,

images and sounds or intelligence of any nature (other than

broadcasting services) and regulated by the Telecom Regulatory


broadcasting services) and regulated by the Telecom Regulatory

Authority of India under the Telecom Regulatory Authority of

India Act, 1997 (24 of 1997);

Generation, transmission, distribution and supply of electricity

regulated by the relevant regulatory body or authority under the

Electricity Act, 2003 (36 of 2003), other than for captive

generation (as defined under the Electricity Rules 2005);

Applicability

Roads and other infrastructure projects;

Drugs and Pharmaceuticals;

Fertilisers;

Sugar and industrial alcohol;

Petroleum products regulated by the Petroleum and Natural Gas

Regulatory Board under the Petroleum and Natural Gas


Regulatory Board under the Petroleum and Natural Gas

Regulatory Board Act, 2006(19 of 2006);

Rubber and allied products being regulated by the Rubber

Board.

Applicability



Multi Product /

Multi Service

Company

Turnover (from such

specific product or such

specific service)

INR 50 crores

or more

INR 100

crores or

more

Net worth of the INR 150 INR 500




One Specific

Product / Service

(Net worth or

Turnover)

Net worth of the

Company or

INR 150

crores or

more

INR 500

crores or

more

TurnoverINR 25 crores

or more

INR 100

crores or

more

Applicability

C - Companies operating in areas involving


C - Companies operating in areas involving

public interest

Applicability

C Companies operating in areas involving public

interest

Note Public interest has not been defined

Note Here the Rules only specify Companies engaged in the

Industry and dont give mention to Manufacturing activity

Railway or tramway locomotives, rolling stock, railway or


Railway or tramway locomotives, rolling stock, railway or

tramway fixtures and fittings, mechanical (including electro

mechanical) traffic signalling equipments of all kind;

Mineral products including cement;

Ores;

Mineral fuels (other than Petroleum), mineral oils etc.;

Base metals;

Applicability

Inorganic chemicals, organic or inorganic compounds of

precious metals, rare-earth metals of radioactive elements or

isotopes, and Organic Chemicals;

Jute and Jute Products;

Edible Oil under Administrative Price Mechanism;

Construction Industry;


Construction Industry;

Companies engaged in health services viz. functioning as or

running hospitals, diagnostic centres, clinical centres or test

laboratories;

Companies engaged in education services, other than such

similar services falling under philanthropy or as part of social

spend which do not form part of any business.

Applicability



Multi Product /

Multi Service

Company

Turnover (from such


specific service)

INR 50 crores

or more

INR 100

crores or

more

Net worth of the INR 150 INR 500




One Specific

Product / Service

(Net worth or

Turnover)

Net worth of the

Company or

INR 150

crores or

more

INR 500

crores or

more

TurnoverINR 25 crores

or more

INR 100

crores or

more

Applicability

D - Companies (including foreign

companies other than those having only


companies other than those having only

liaison offices) engaged in the production,

import and supply or trading of following

medical devices

Applicability

D Companies (including foreign companies other

than those having only liaison offices) engaged in the

production, import and supply or TRADING of

following medical devices:

Cardiac Stents, Drug Eluting Stents, Catheters, Intra Ocular

Lenses, Bone Cements, Heart Valves, Orthopaedic Implants,


Lenses, Bone Cements, Heart Valves, Orthopaedic Implants,

Internal Prosthetic Replacements, Scalp Vein Set, Deep Brain

Stimulator, Ventricular peripheral Shud, Spinal Implants,

Automatic Impalpable Cardiac Deflobillator, Pacemaker

(temporary and permanent), patent ductus arteriosus, atrial

septal defect and ventricular septal defect closure device,

Cardiac Re-synchronize Therapy, Urethra Spinicture Devices

Sling male or female, Prostate occlusion device, Urethral Stents

Applicability



Multi Product ,

any product or

device

Turnover (from such


specific service)

INR 10 crores or more or one

third of turnover whichever is

less




One Specific

Product / Service

(Net worth or

Turnover)

Net worth of the

Company orINR 150 crores or more

Turnover INR 25 crores or more

Applicability

Should we go by Heading of each chapter and consider theindustries specified therein as illustrative? Or,

Is Industries list exhaustive and Headings do not carrysignificance? In some categories ENGAGED / OPERATING areused & in some PRODUCTION. Do the former includeTRADING?

How to interprete industry names? Would Steel Industry meanonly Primary Steel, or Secondary Steel from EAF route, Rolling


only Primary Steel, or Secondary Steel from EAF route, RollingMills, Products made from Steel?

The applicability is linked with Networth (for the Company) orTurnover from Product or Service

What is Product or Service is not defined. As per pptsubmitted to FM, in case of Pharmaceuticals, variousdosage forms, such as Tablets, Capsules, Syrups, etc havebeen defined as products.

Applicability

If this were the case, the scope and applicability would to a

handful of companies.

- Construction company may define each apartment as a

product

- Pharma company may define each formulation (corcin,

digene) and each pack size as also variant as a product


digene) and each pack size as also variant as a product

- School may define std. 1, 2, 3 etc as products

- Hospital may define each type of surgery as products

MCA has not linked Products to Excise/ST codes as in the

past

Utmost care needs to be taken while defining PRODUCT

Applicability

2011 Rules had a list of Products & Activities excluded

from Cost Records/Audit

2014 Rules have named Products & Industries covered for

Cost Records/Audit.

However, it is not clear what is meant by these


Also , how to calculate threshold Turnover is not defined

Maintenance


Every Company covered including units and branches shall

maintain cost records in Form CRA 1

This is not a form, it is a narration about Cost Records

There is no mention of compliance with Cost Accounting

Standards or GACAP. However, as per Institute guidelines, these


Standards or GACAP. However, as per Institute guidelines, these

need to be adhered to

Company needs to prepare cost statements quarterly and

annually

Maintenance

Cost Records:

To be maintained on regular basis

To facilitate calculation of per unit cost of production /

operation, cost of sales and margin

For each products and activities

For every Financial Year on monthly or quarterly or half-


For every Financial Year on monthly or quarterly or half-

yearly or annual basis

Cost Records to enable:

Control over operations and costs

Economies in utilization of resources

Provide necessary data required to be furnished under these

rules

Cost Audit


Cost Audit

Cost Audit -2011

BoD needed to appoint Cost Auditor & file Form 23C withMCA within 90 days of commencement of Accounting Year

MCA would approve the appointment within 30daysthereafter

Cost Auditor needed to file Form 23D within 30 daysaccepting the appointment


Cost Audit Report & Annexure thereto were to be filed withMCA within 180 from y/e in XBRL format

The Annexure to CAR needed to be approved by BoD

Cost Auditor was to give Performance Appraisal Report toBoD

Confidential data as also suggestions and PerformanceReview were not uploaded with MCA

PARA PARTICULARS DATA TO BE GIVEN FOR

1 General Information 1 yr2 Cost Accounting Policy 1 yr3 Product Group Details 1 yr4 Quantitative Information 2 yr5 Abridged Cost Statement 2 yr

Annexure to CAR-2011


5 Abridged Cost Statement 2 yr6 Operating Ratio Analysis 2 yr7 Profit Reconciliation 2 yr8 Value Addition 2 yr

9 Financial Position & Ratio Analysis 2 yr10 Related Party Transactions 1 yr11 Reconciliation of Indirect Taxes 1 yr

Cost Audit

Appointment

File Form CRA - 2 with Central Government along with fee as

specified in Companies (Registration Offices and Fees) Rules,

2014 within:

30 days of Board Meeting in which such appointment is made or

Within 180 days from commencement of Financial Year

whichever is earlier


whichever is earlier

Audit Report

Cost Auditor to submit report in Form CRA 3

Cost Auditor to forward Report to Board within 180 days from

closure of Financial Year

Board to consider and examine the report for any qualification

Cost Audit

Company to upload Cost Audit Report within thirty days from

date of receipt of the same in Form CRA 4

CAR to be attached in PDF format and XBRL not specified

Filing fees for CRA - 4 will be as specified in Companies

(Registration Office and Fees) Rules, 2014

Company to provide full information and explanation on every


Company to provide full information and explanation on every

reservation / qualification as mentioned in the Report along

with such cost audit report while uploading in Form CRA 4

Exclusions

Exclusion from Cost Audit if:

Revenue from exports, in foreign exchange, exceeds 75% of total

revenue or

Operating from SEZ

Cost Audit Report

Report to adhere to Cost Audit Standards

No mention of Cost Accounting Standards or GACAP as

compared to 2011 Rules

As per Institute guidelines, any deviation from these needs to

be disclosed

No need to give Performance Appraisal Report (PAR) to


No need to give Performance Appraisal Report (PAR) to

Company. This will be part of Cost Audit Report and be filed

with MCA

With detailed cost sheets and PAR being filed with MCA, there

will be sharing of confidential information with MCA

Annx To CAR

a. Background, including collaboration details

b. Cost Accounting Policy

c. Process of Manufacture

d. Turnover break-up

e. Production, Capacity & Stocks & Sales qty


e. Production, Capacity & Stocks & Sales qty

f. Major Inputs

g. Standard/Actual Consumption of Major Inputs

h. Cost Break-up of Imported Inputs

Annx To CAR

i. Qty & Cost of Major Utilities & their apportionmentj. Employee Details Costs, Headcount, attendance,

etck. Repairs & Maintenancel. Net Fixed Assets & Depreciationm. Overheads Break-up & Apportionment


m. Overheads Break-up & Apportionmentn. R & D Expenseso. Royalty & Technical Knowhow Chargesp. Abnormal/Non Recurring Costsq. Non-Moving Stockr. Written off Stocks/Forfeited Servicess. Inventory Valuation

Annx To CAR

t. Sales/revenue Break-upu. Margin per unit of Outputv. Related Party Transactionsw. Excise/Service Tax Reconciliationx. Profit Reconciliationy. Cost Statements to be given for each type/variety/


y. Cost Statements to be given for each type/variety/ description of good(s)/service(s), separately for domestic/ exports/ related parties & captive consumption

Contact Us

Address:

701/702, D-Wing, 7th Floor, Neelkanth Business Park,

Nathani Road, Vidyavihar - West, Mumbai 400086

Email:Email:

[email protected]

www.kishorebhatia.com


Thank You


DisclaimerThis e-publication is intended solely for the purposes of providing necessary informationrelating to Companies (Cost Records & Audit) Rules, 2014 to clients and other businessassociates. No person should act upon the information contained in this publication withoutobtaining specific professional advice. Whilst every care has been taken in the preparation ofthis publication, it may contain inadvertent errors for which we shall not be held responsible

This publication is not intended for advertisement and/or for solicitation of work.

carr 2014 navi mumbai 200714

Documents

cost audit orders

private circulation

private circulation

private circulation

crorescost audit

monthsstrictly confidential

total turnover

recreation transport