cost accounts and audit oct 2015rmaca.co.in/development/images/pdf/cost accounts... · link to the...
TRANSCRIPT
Oct. 2015
1
CA Anjani Kheterpal, Kanpur
BACKGROUND
� The 2011 Cost Accounting Record Rules brought a major change in the Cost
Accounting requirements under the Companies Act.
� The Rules provided:
◦ Wider coverage
◦ Common consolidated Rules for non regulated sectors unlike the erstwhile
industry and product specific regulations
◦ Maintenance of cost records according to nature and size of business.
◦ Simplified reporting
◦ Link to the Central Excise Tariff Act (CETA) and thus removed ambiguity
as regards coverage.
� These remained in force only for a brief period from 2011 to 2014 whereafter
the Companies (Cost Records & Audit) Rules 2014 were notified.
CA Anjani Kheterpal, Kanpur
Oct. 2015
2
BACKGROUND
� The 2011 Cost Accounting Record Rules brought a major change in the Cost
Accounting requirements under the Companies Act.
� The Rules provided:
◦ Wider coverage
◦ Common consolidated Rules for non regulated sectors unlike the erstwhile
industry and product specific regulations
◦ Maintenance of cost records according to nature and size of business.
◦ Simplified reporting
◦ Link to the Central Excise Tariff Act (CETA) and thus removed ambiguity
as regards coverage.
� These remained in force only for a brief period from 2011 to 2014 whereafter
the Companies (Cost Records & Audit) Rules 2014 were notified.
CA Anjani Kheterpal, Kanpur
DATE NOTIFICATION/
SECTION DESCRIPTION
01.04.2014 Section 148 Section made applicable. Govt.
to specify audit of items of cost
01.07.2014 Companies (cost records
and audit) Rules, 2014
Rules notified for applicability of
section 148, forms to be filed for
appointment of cost auditor etc.
31.12.2014
Companies (cost records
and audit) Amendment
Rules, 2014
Major overhauling of the 2014
rules to bring them some what in
line with the 2011 Rules
CHRONOLOGY
CA Anjani Kheterpal, Kanpur
Oct. 2015
3
“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 under that section.
Books of Account- Section 2(13) of the Companies Act, 2013
CA Anjani Kheterpal, Kanpur
Sub Section (3) requires an auditor to report as under:
(b) whether, in his opinion, proper books of account as required by law have
been kept by the company so far as appears from his examination of those
books and proper returns adequate for the purposes of his audit have
been received from branches not visited by him;
(d) requires an auditor to report:
“whether the company’s balance sheet and profit and loss account dealt
with in the report are in agreement with the books of account and
returns.
(h) any qualification, reservation or adverse remark relating to the
maintenance of accounts and other matters connected therewith;
Section 143- Powers & duties of Auditors
CA Anjani Kheterpal, Kanpur
Oct. 2015
4
Appointment of cost auditor- By the Board
Report to be submitted to- The Board of Directors of the company.
Sub section (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 qualification contained therein.
CA Anjani Kheterpal, Kanpur
� Penalty for default- sub section (8) of section 148 states as under:
“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.”
CA Anjani Kheterpal, Kanpur
Oct. 2015
5
� Defaulting Company- Shall be punishable with a minimum fine of Rs.25,000 and a maximum fine of Rs.5 lacs.
� Officer in default-
◦ Fine- Minimum Rs.25000/- and maximum Rs.5 lacs; and/or
◦ Imprisonment- upto a term of one year .
CA Anjani Kheterpal, Kanpur
� Auditor/Cost Auditor-
◦ Fine-Minimum Rs.25000/- and maximum Rs.5 lacs;
◦ If the contravention has been done knowingly or wilfully, with an intention to
deceive the company/the shareholders/creditors/tax authorities, the auditor will be
punishable with:
� Fine- Minimum 1 lac and maximum 25 lac; and/or
� Imprisonment upto one year; and
� If convicted:
(a) the auditor will have to refund the remuneration received by him; and
(b) pay damages to the company, statutory bodies, authorities or to any other
persons for loss arising out of incorrect or misleading statements of
particulars made in his audit report.
CA Anjani Kheterpal, Kanpur
Oct. 2015
6
Companies (Cost Records and Audit) Rules, 2014
CA Anjani Kheterpal, Kanpur
� Rule 2(e) defines “cost records” as:
“books of account relating to utilisation of materials, labour and other items of cost as applicable to the production of goods or provision of services as provided in section 148 of the Act and these rules”
CA Anjani Kheterpal, Kanpur
Oct. 2015
7
� Applies to all companies including Foreign Companies defined u/s
2(42) of the Act.
� Section 8 Companies- No exclusion. Specific exclusion provided
under categories.
� Pvt.Ltd. Companies- No specific exclusion.
CA Anjani Kheterpal, Kanpur
Company- whether Micro or Small Co.?
YES
NO
MAINTAIN COST
RECORDS
NOT TO MAINTAIN
COST RECORDS
WHETHER TURNOVER EXCEEDS RS.35 CRORES?
YES
Whether engaged in Specified activity?
NO
YES
CA Anjani Kheterpal, Kanpur
Oct. 2015
8
Companies classified as Micro or small companies under the Micro, Small and
Medium Companies Act, 2006
• Manufacturing-Investment in Plant & Machinery < Rs.25 lacs
• Service-Investment in Equipment< 10 Lacs
Micro
• Manufacturing-Investment in Plant & Machinery > Rs.25 lacs but < 5 crores
• Service-Investment in Equipment >10 Lacs but less tha Rs.2 Crores
Small
CA Anjani Kheterpal, Kanpur
Only In case of Imported Plant &
Machinery:
� Import Duty
� Shipping Charges
� Customs Clearance Charges
� Sales tax and VAT
� Tools, jigs, dyes, moulds and spare parts
� Installation costs
� R & D and Pollution Control equipment
� Power generation set
� Electrical control panels etc.
� Transportation costs in case of indigenous
machinery
� Technical fees for erection of machine
� Storage tanks not linked with manufacturing
process
� Fire fighting equipment
INCLUDE EXCLUDE
CA Anjani Kheterpal, Kanpur
Oct. 2015
9
� Turnover in the immediately preceding year to be considered.
� Section 2(91) of the Companies Act, 2013 defines “Turnover” as:
the aggregate value of the realization of amount made from the sale,
supply or distribution of goods or on account of services rendered,
or both, by the company during a financial year.
CA Anjani Kheterpal, Kanpur
� Duties and taxes like excise duty and VAT/CST
collected on sales?
� Sale value of scrap generated from manufacturing
operations?
� Other operational revenues like Duty Drawback,
Jobwork Charges?
� Trading Turnover?
CA Anjani Kheterpal, Kanpur
Oct. 2015
10
Table A- Regulated Sectors
Table B- Unregulated Sectors
6 regulated sectors covered
including Pharma, Sugar
telecommunication,
Fertilisers, Petroleum
Products & Generation of
electricity.
Applicability from
01.04.14- all six sectors
Covers 33 unregulated sectors
Includes service sectors such as
Health, education, Port services
Also includes trading of
specified Medical equipment.
Applicability from 01.04.14-
22 out of 33 sectors
Applicability from 01.04.15-
the 11 remaining sectors
CA Anjani Kheterpal, Kanpur
Particulars CETA
Heading
Applicable
w.e.f Remarks
Steel (Sl.No.9, Table B) 7201 to 7729
7301 to 7326
01.04.14 The Tariff heading is ‘Iron & Steel’. Very
extensive coverage. Includes almost all industries
manufacturing any items from Iron & Steel.
Construction Industry
(Sl.No.21, Table B)
Not
Applicable
01.04.14 Only covers construction specified in Sch.VI ,
Clause 5(a) of the Act. These include “real
estate development including industrial park
or special economic zone”
Education services
(Sl.No.23, Table B)
Not Applicable 01.04.14 Other than education services falling under
philanthropy or social spend, not forming part of
any business.
Textiles 5004-07; 5106-
13; 5205-12;
5303-10; 5401-
08 & 5501-16
01.04.15 Very extensive coverage. Covers all textile
industries including silk, cotton, woollen,
synthetic etc..
CA Anjani Kheterpal, Kanpur
Oct. 2015
11
� Edible Oils
� Organic & Inorganic chemicals
� Base metals
� Plastic and polymers
� Paper
� Other Machinery
� Electricals and Electronic Machinery
CA Anjani Kheterpal, Kanpur
� M/s Reliable Auto Limited is manufacturing three wheelers. The Finished
product sold by the company is NOT covered under any of the Tariff Headings
mentioned in Table B. The company makes certain iron parts in-house for
captive consumption and fitting in the three wheelers. These are covered under
Sl.No.9 of the Table. However the turnover from parts is ‘Nil’. Assuming that
M/s Reliable Auto Ltd. is:
◦ Not a Micro/Small Enterprise
◦ Had a total turnover of Rs.55 Crores from three wheelers in the preceding
year.
Whether the company is required to maintain cost records? If yes, in respect
of which items?
CA Anjani Kheterpal, Kanpur
Oct. 2015
12
� The criteria for applicability of Rule 3 is as under:
◦ The company should be engaged in manufacture of specified items
◦ The ‘overall turnover’ of the company as a whole should be atleast Rs.35 crores in the preceding year.
� Therefore even if the the Turnover of the company from the specified items is Nil, it would still be covered.
� Therefore M/s Reliable Auto will have to maintain cost records in respect of the iron/steel components manufactured by it for captive consumption.
CA Anjani Kheterpal, Kanpur
� M/s Succhi Chemicals (P) Ltd. is engaged in manufacture as well as trading in
chemicals. During F.Y.2013-14, the details of turnover of the company were as
under:
◦ Turnover from manufacturing activity : 10 crores
◦ Turnover from trading operations : 31 Crores
The company is not a micro or small enterprise. The chemicals manufactured
by the company fall within the CETA heading specified under Sl.18 of Table
B of Rule B of the CCRA 2014.
Whether the company is required to maintain cost records for F.Y.2014-15?
CA Anjani Kheterpal, Kanpur
Oct. 2015
13
� Yes, the company is required to maintain cost records in respect
of its manufacturing activity as its total turnover in the preceding
year exceeded Rs.35 Crores.
� The fact that the turnover from manufacturing activity per se
was less than Rs.35 crores is not material for determination of
applicability of Rule 3.
CA Anjani Kheterpal, Kanpur
� Form CRA-1- Form for maintenance of Cost Records.
� Records should be maintained in such manner so as to enable ◦ calculation of per unit
◦ Cost of production/operations
◦ Cost of sales & margins
◦ Of each of its Products.
� Records to be maintained on regular basis on a monthly/quarterly/half yearly/annual basis
CA Anjani Kheterpal, Kanpur
Oct. 2015
14
Cost Audit
CA Anjani Kheterpal, Kanpur
Table A- Regulated Sectors
Table B- Unregulated Sectors
If overall Turnover from all
its products and services in
the immediately preceding
year is atleast Rs.50 Crores;
AND
If total urnover from all
products/activities covered
under Rule 3 is atleast Rs.25
cr.
If overall Turnover from all
its products and services in
the immediately preceding
year is atleast Rs.100 Crores;
AND
If total urnover from all
products/activities covered
under Rule 3 is atleast Rs.35
cr.
CA Anjani Kheterpal, Kanpur
Oct. 2015
15
Particulars Company A Comapny B
Total Turnover in
F.Y.2013-14
100 Crores 95 Crores
Turnover from products
covered under Rule 3
35 Crores 85 Crores
Whether cost audit
applicable
Yes No!!!
Assuming that both, Company A as well as Company B are engaged
in similar business, the applicability of Cost audit shall be as under:
CA Anjani Kheterpal, Kanpur
1. Companies whose revenue from ‘Exports’, in Foreign
Exchange exceeds 75% of its total revenue.
2. Companies operating from a Special Economic Zone.
CA Anjani Kheterpal, Kanpur
Oct. 2015
16
1. Companies to appoint Cost Auditor within 180 days from the
commencement of the Financial Year i.e. By 30th Sept. each year
2. Appointment to be done by the Board
3. Form CRA-2- ‘Notice of Appointment of Cost Auditor’ to be filed with
the Central Government within 30 days of appointment or within 180
days from commencement of the Financial Year, whichever is earlier!
4. Appointment of the cost auditor is upto date of submission of Report
of 180 days from close of the F.Y., whichever is earlier.
CA Anjani Kheterpal, Kanpur
5. Form CRA-3- Cost Audit Report Format.
6. Cost audit Report to be submitted by the Cost Auditor to the Board
within 180 days from the end of the Financial Year.
7. Form CRA-4: Form for furnishing of Cost Audit Report to the Central
Govt.
8. CRA-4 is to be filed within 30 days of receipt of the Report along with
full information and explanation on every reservation/qualification
contained
CA Anjani Kheterpal, Kanpur
Oct. 2015
17
� CRA 1- requires maintenance of separate and detailed cost records in
respect of transactions with related parties.
� CRA-3- requires a cost auditor to report following details in respect of
transactions with a related party:
◦ Name and address of each related party
◦ product/service wise transaction details with each of the related
parties.
◦ Normal price and basis thereof
◦ Transfer price
CA Anjani Kheterpal, Kanpur
� Section 128(5) requires that the Books of account (which also
include cost records) to be to be kept in good order for the
preceding 8 years.. Therefore cost records, wherever applicable
are also required to be kept ready for a minimum period of 8
years.
CA Anjani Kheterpal, Kanpur
Oct. 2015
18
Parameter 2011 Rules Present Rules
Coverage Wide Substantially reduced
Format of cost records Principle based cost records to be
maintained, according to size and
nature of business
No flexibility. Cost
elements are defined in
the rules
Report At product group level At product level
Confidentiality Maintained Compromised
Detailed product wise cost
statements
Not to be submitted To be submitted
Multiple cost audit reports for
each unit and each product
Dispensed with Reintroduced
CA Anjani Kheterpal, Kanpur
� Whether the turnover limits are to be checked and applied on a year to year basis?
� The Rules and Act seem to be silent on the issue.
� The FAQ’s issued by the Institute of Cost Accountants of India opines otherwise.
CA Anjani Kheterpal, Kanpur
Oct. 2015
19
CA Anjani Kheterpal, Kanpur