CMA Final · Cost and Management Audit

Companies (Cost Records and Audit) Rules, 2014: formula sheet

Full chapter guide

Key formulas

Cost records power: Section 148(1): order for a class of companies + prescribed goods or services → cost items included in books of account; The Central Government must consult the regulator first if the class is regulated under a special Act.
Cost audit power: Section 148(2): covered under (1) + prescribed net worth or turnover + Government's opinion that audit is necessary → audit of cost records; Cost audit is narrower than cost records. Not every company keeping cost records is audited.
Appointment: Section 148(3): cost accountant appointed by the Board; remuneration determined by members in the prescribed manner; A section 139 auditor of the company cannot be appointed as cost auditor.
Standards: Section 148(3) second proviso: cost auditor must comply with cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval; Link this to the Standards on Cost Auditing.
Relationship with statutory audit: Section 148(4): cost audit is in addition to the audit under section 143; It never replaces the statutory audit.
Report and filing: Section 148(5)-(6): report goes to the Board of Directors; company furnishes the report to the Central Government within 30 days of receiving a copy, with full information and explanation on every reservation or qualification; The 30 days run from the company's receipt of the report copy.
Default: Section 148(8): company and officers in default are punishable as per section 147(1); the cost auditor in default as per section 147(2) to (4); Penalty amounts are in section 147, not section 148.
Cost records applicability (Rule 3): Company engaged in production of goods or services covered in Table A or Table B AND overall turnover of preceding year ≥ ₹35 crore; Overall turnover means turnover from all products and services, including all units and branches.
Cost audit: regulated sector (Rule 4): Table A company AND overall turnover ≥ ₹50 crore; The company must also be covered by Rule 3, which it will be at this turnover.
Cost audit: non-regulated sector (Rule 4): Table B company AND overall turnover ≥ ₹100 crore; Below ₹100 crore, check the product-turnover limb of Rule 4.
Cost audit: product turnover limb (Rule 4(3)): Company covered under Rule 3 AND aggregate turnover of the individual product(s) or service(s) requiring cost audit ≥ ₹35 crore; This is an alternative limb in Rule 4, set beside the overall turnover limit. The figure comes from the Rules and is not in Section 148 itself.
Cost audit exemptions (Rule 4(4)): Export revenue in foreign exchange > 75% of total revenue, OR company operates from a Special Economic Zone; These exemptions remove the cost audit requirement only. Cost records under Rule 3 still apply.
Statutory conditions on cost auditor (Section 148): Cost accountant appointed by Board; cannot be the Section 139 statutory auditor; audit is in addition to Section 143 audit; Report goes to the Board. The company sends the report to the Central Government within thirty days of receiving it.
Who keeps cost records: Company covered by the applicability rule of the Rules → must keep cost records; Maintenance is a separate step from applicability. A company must first fall within the Rules by industry and size.
Form of records: Cost records are kept in the CRA-1 format; CRA-1 is for maintaining records. The cost audit report is a different form, CRA-3.
Adequacy test: Records must allow: cost per unit of production or operation, cost of sales, and margin, product-wise or activity-wise, for every financial year; Kept on a regular basis, in line with cost accounting principles and Cost Accounting Standards.
Place of keeping: Registered office, or another place in India decided by the Board; The Board decides. Write 'in India' in your answer.
Retention period: Not less than 8 years from the end of the financial year to which the records relate; Count from the year end, not from the date of the entry.
Cost records vs cost accounting records: Cost records = cost accounting records + cost statements and other related records; Cost accounting records cover material, labour and other inputs.
Who appoints: Cost auditor = cost accountant appointed by the Board (Section 148(3)); Remuneration is determined by the members in the prescribed manner. The Board does not fix it alone.
Bar on statutory auditor: Section 139 auditor ≠ cost auditor; The first proviso to Section 148(3): no person appointed under Section 139 as the company's auditor can be appointed to audit cost records.
Standards: Cost auditor must comply with cost auditing standards; Standards are issued by the Institute of Cost Accountants of India with Central Government approval.
Relation to financial audit: Cost audit is in addition to Section 143 audit; Section 148(4). It does not replace the statutory audit.
Report goes to: Cost auditor → Board of Directors; Section 148(5) proviso. The company then sends a copy to the Central Government within 30 days of receiving it, with explanations on every reservation or qualification (Section 148(6)).
Rule 6 steps (from the Rules, not the text above): Audit Committee recommendation → consent and certificate → Board appointment → member ratification of remuneration → CRA-2; Check exact time limits in the current Rules before the exam.
Who submits the report to whom: Cost auditor → Board of Directors (Form CRA-3); Company → Central Government (Form CRA-4); Section 148(5) proviso: the report is submitted to the Board. Section 148(6): the company furnishes it to the Government.
Time limit for CRA-3: Cost auditor submits CRA-3 within 180 days from the end of the financial year; Rule under the Companies (Cost Records and Audit) Rules, 2014. Count 180 days from the year end, not from the date of appointment.
Time limit for CRA-4: Company files CRA-4 within 30 days from the date of receipt of a copy of the cost audit report; Section 148(6). The 30 days run from receipt by the company, not from the year end.
Content of filing: Report + full information and explanation on every reservation or qualification; Section 148(6). Silence on a qualification is a defect in the filing.
Standards to follow: Cost auditor must comply with cost auditing standards; Second proviso to section 148(3). Standards are issued by the Institute of Cost Accountants of India with Central Government approval.
Relationship with statutory audit: Cost audit is in addition to the section 143 audit; Section 148(4). A person appointed as statutory auditor under section 139 cannot be appointed cost auditor (first proviso to 148(3)).
Further information: Central Government may call for further information; company furnishes it within the time specified; Section 148(7).
Rights and duties of cost auditor: Section 148(5): auditor's qualifications, disqualifications, rights, duties and obligations apply to the cost auditor, so far as applicable; This is why the cost auditor has the company auditor's right of access to books and records.
Company's duty to assist: Company must give all assistance and facilities to the cost auditor (Section 148(5)); Cite this when a question says management refused records or access.
Report recipient: Cost audit report goes to the Board of Directors (proviso to Section 148(5)); The cost accountant submits it to the Board, not directly to the Government.
Filing with Government: Within 30 days of receiving the report: furnish Central Government the report with full information and explanation on every reservation or qualification (Section 148(6)); The duty is on the company. The 30 days run from receipt of the copy of the report.
Further information: Central Government may call for further information; company must furnish it within the time specified (Section 148(7)); Triggered after the Government considers the report and the company's explanation.
Penalty on default: Company and officers in default: Section 147(1). Cost auditor in default: Section 147(2) to (4). Source: Section 148(8); Two different limbs. Do not mix them.
Relationship with other audits: Cost audit is in addition to Section 143 audit; the Section 139 auditor cannot be appointed as cost auditor (Section 148(3) and (4)); A common one-line MCQ point.

Quick revision

Section 148(1): the Central Government may direct that cost records be kept by specified classes of companies producing goods or providing services.
Section 148(2): audit of cost records may be ordered for covered companies above prescribed net worth or turnover.
Cost audit is appointed by the Board; remuneration is decided by the members in the prescribed manner.
A person appointed as statutory auditor under Section 139 cannot be appointed to audit cost records of the same company.
The cost auditor must comply with the cost auditing standards, which are issued by the Institute with Central Government approval.
Cost audit is in addition to the audit under Section 143.
The cost audit report is submitted to the Board of Directors.
The company must furnish the report to the Central Government within thirty days of receiving a copy, with full information and explanation on every reservation or qualification.
The Central Government may call for further information, which the company must furnish within the time it specifies.
Qualifications, disqualifications, rights and duties of auditors under the Chapter apply to the cost auditor so far as applicable.
The company must give the cost auditor all assistance and facilities.
Default: the company and officers in default are punishable under Section 147(1); the cost auditor under Section 147(2) to (4).

Common mistakes

Saying every company must get a cost audit under section 148. Fix: Write that the Central Government must direct a class of companies, and that cost audit needs both coverage under sub-section (1) and the prescribed net worth or turnover.
Treating cost records and cost audit as the same thing. Fix: Keep two layers. Sub-section (1) is about records in books of account. Sub-section (2) is about auditing them.
Treating cost records and cost audit as the same test. Fix: Answer in two lines: records applicable or not, audit applicable or not. Remember that records come first and audit is a subset.
Applying ₹100 crore to a regulated-sector company or ₹50 crore to a non-regulated one. Fix: Tie the lower figure to the regulated sector: ₹50 crore for Table A and ₹100 crore for Table B. Anchor on the sector word in the question.
Counting the eight years from the date of the transaction or from the date of the audit report. Fix: Count from the end of the financial year to which the records relate. For FY 2026-27, the end is 31 March 2027.
Treating Form CRA-1 as the cost audit report form. Fix: Link CRA-1 with maintaining cost records. Link CRA-3 with the cost audit report.
Saying members appoint the cost auditor. Fix: Remember Section 148(3): the Board appoints. The members' role is on remuneration only.
Saying the Board fixes the cost auditor's remuneration. Fix: Write that remuneration is determined by the members in the prescribed manner, as the Act says.
Saying the cost auditor files the report with the Central Government. Fix: Remember the proviso to section 148(5): the auditor reports to the Board. Section 148(6) puts the filing duty on the company.
Counting the 30 days for CRA-4 from the financial year end. Fix: CRA-4 runs from the date the company receives a copy of the report. Underline the trigger date in the question.

Exam tips

In theory answers, name the sub-section: (1) records, (2) audit, (3) appointment, (4) in addition to section 143, (5) report to Board, (6) filing within 30 days, (8) default.
For applicability cases, show the two-gate test in writing, with the figures compared against the limits, then a one-line conclusion.
In MCQs, watch for traps: statutory auditor as cost auditor, report sent directly to the Government, and cost audit replacing the section 143 audit.
Do not quote penalty amounts under section 148. Say the penalty follows section 147 and give the sub-section split for company and cost auditor.
Revise this topic with the Rules on cost records, appointment and the report, since questions often combine them in one case.
In case-based MCQs the answer is often decided by one detail: the sector table, the preceding year, an SEZ unit or the export share. Underline these before computing.
In written answers, give a separate conclusion for cost records and for cost audit. Examiners reward the split.
Always compare the product turnover with ₹35 crore when overall turnover is below the audit limit.