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Cost and Management Audit · Basics of Cost Audit

Cost Records and Cost Accounting Records Rules Explained

Updated 11 October 2026 · Fact-checked

Under Section 148 of the Companies Act, 2013, the Central Government can require certain companies to keep cost records in their books of account. The Cost Records and Audit Rules, 2014 prescribe the industries and the applicability thresholds. To answer a question, check the industry, check the thresholds in the Rules or the question, then apply the rules on form, maintenance and retention.

Understand Cost Records and Cost Accounting Records Rules

A cost record is a record of the utilisation of material, labour and other items of cost. Normal financial books show profit. They do not show what each product or service costs. Section 148(1) lets the Central Government direct that such particulars be included in the books of account of a class of companies engaged in producing prescribed goods or providing prescribed services.

The direction is made by order. The Government must first consult the regulator if the class of companies is regulated under a special Act. This is why the law is not a blanket rule. It applies only to the classes of companies and the items of cost that are prescribed.

The prescription is in the Companies (Cost Records and Audit) Rules, 2014. They list the specified products and services in two groups: regulated sectors (for example, telecom, power, petroleum, pharmaceuticals, fertilisers and similar industries that have a sector regulator or government pricing control) and non-regulated sectors (for example, many manufacturing industries such as steel, cement, paper, textiles and engineering goods). A company in a listed industry must keep cost records only if it also meets the applicability thresholds prescribed in the Rules. Section 148 itself does not state those thresholds. Verify them from the Rules text in your study material, or use the figures given in the question.

The Rules also deal with how records are kept. They ask for proper cost accounting records, in the form the Rules prescribe, which can be kept in physical form or in electronic mode. The records must be kept on a regular basis, tie in with the financial books, and be preserved for the period the Rules prescribe.

Keep two ideas apart. Maintaining cost records is the duty of the company. Cost audit is a further step under Section 148(2), applicable only to those covered companies that meet the higher criteria. Every company that needs a cost audit must keep cost records. The reverse is not true.

Key rules to remember

Section 148(1): power to require cost records
Central Government order → class of companies → prescribed goods or services → prescribed items of cost included in books of account
The requirement arises only through an order and the Rules, not for every company.
Consultation proviso
Regulated by a special Act → Central Government must consult the regulator before the order
This explains why regulated sectors are treated separately.
Cost records versus cost audit
Cost audit applies to a subset of companies that must keep cost records (Section 148(2))
Audit needs the net worth or turnover criteria set out in the Rules.
Records applicability
Specified industry + thresholds prescribed in the Companies (Cost Records and Audit) Rules, 2014 met = cost records required
Section 148 does not give the thresholds. The Rules prescribe them. Verify the thresholds and how they are measured from the Rules text in your study material, or take them from the question.
Retention
Preserve cost records for the period prescribed in the Rules
Audit documentation has its own rule: SCA 102 para 6.16 says the auditor must not delete or discard audit documentation before the end of its retention period.

How to solve Cost Records and Cost Accounting Records Rules questions

Use this order for any question on who must keep cost records and how they must be kept.

  1. 1Identify the company's products or services and check whether they fall in a specified industry, regulated or non-regulated.
  2. 2Take the applicability thresholds from the Companies (Cost Records and Audit) Rules, 2014, or from the figures given in the question. Do not rely on a number remembered from elsewhere.
  3. 3Test the company against those thresholds. If it does not meet them, no cost records are required under the Rules.
  4. 4If records are required, state that they must be in the prescribed form and included in the books of account, in physical or electronic mode.
  5. 5Then ask if a cost audit is also in question. If yes, test the separate audit criteria and remember the audit is in addition to the Section 143 audit.
  6. 6Add the retention rule and the duty to keep the records on a regular basis.
  7. 7Close with a clear conclusion in one line: required or not required, and what the company must do.

Quickest way: Three-gate check

When to use it: Use this for short applicability questions or MCQs where you have under two minutes.

  1. Gate 1: Is the product or service in the specified list? If no, stop.
  2. Gate 2: Does the company meet the applicability thresholds prescribed in the Rules (as given in the question or the Rules text)? If no, stop.
  3. Gate 3: If both are yes, the company keeps cost records. Check separately for audit only if the question asks.

Common mistakes in Cost Records and Cost Accounting Records Rules

  • Treating cost records and cost audit as the same thing

    Both come from Section 148 and are taught together.

    Fix: Write them as two steps. Section 148(1) is records. Section 148(2) is audit, for a narrower set of companies.

  • Quoting a threshold from memory or from Section 148

    Students assume Section 148 itself carries the limits, or mix up the records test with the audit test.

    Fix: Section 148 does not state the thresholds. Take them from the Companies (Cost Records and Audit) Rules, 2014, or from the question, and keep the records test separate from the audit test.

  • Assuming every company must keep cost records

    Students overstate Section 148 as a general rule.

    Fix: State that it applies only where the Central Government has ordered it for a class of companies, through the Rules.

  • Forgetting retention and the regular-basis requirement

    Focus stays on applicability.

    Fix: Always add: prescribed form, regular maintenance, tied to the books, kept for the prescribed period.

  • Saying the statutory auditor can do the cost audit

    Both are audits of the same company.

    Fix: Section 148(3) says a person appointed under section 139 as auditor cannot be appointed to audit cost records. The cost audit is by a cost accountant.

Worked examples

Example 1

Sunrise Cement Ltd makes cement, a product in a non-regulated industry listed in the Rules. The question states that the company meets the applicability thresholds prescribed in the Companies (Cost Records and Audit) Rules, 2014 for maintaining cost records. Does it have to keep cost records? Is cost audit automatic?

Show the solution
  1. Cement is in a specified industry, so gate 1 is met.
  2. The question states that the thresholds in the Rules are met, so gate 2 is met. In an exam, take the thresholds from the question or the Rules text. Section 148 does not state them.
  3. So the company must keep cost records in the prescribed form, included in its books of account, and preserve them for the prescribed period.
  4. Cost audit is a separate test under Section 148(2) with its own criteria in the Rules. Meeting the records test does not by itself bring a cost audit; check the company against the audit criteria.

Answer: Yes, on the facts given, Sunrise Cement Ltd must maintain cost records. A cost audit does not follow automatically and depends on the separate audit criteria.

Example 2

Meera & Co., chartered accountants, are the statutory auditors of Vihaan Industries Ltd under section 139. The Board wants them also to audit its cost records under Section 148. Advise the Board, and state to whom the cost audit report goes and what the company must do next.

Show the solution
  1. Section 148(3) says the cost audit is by a cost accountant appointed by the Board. The first proviso says no person appointed under section 139 as auditor of the company can be appointed to audit cost records.
  2. So Meera & Co. cannot be appointed as cost auditor while they are the statutory auditors.
  3. Section 148(4) says the cost audit is in addition to the audit under section 143. It does not replace the statutory audit.
  4. Under the proviso to Section 148(5), the cost auditor submits the report to the Board of Directors.
  5. Under Section 148(6), the company must furnish the Central Government with the report, with full information and explanation on every reservation or qualification, within thirty days of receiving a copy.

Answer: Meera & Co. cannot be the cost auditor. The Board must appoint a separate cost accountant. The report goes to the Board, and the company sends it to the Central Government within thirty days with explanations on every reservation or qualification.

Exam tips

  • Do not quote a turnover limit from memory. Use the thresholds given in the question or in the Companies (Cost Records and Audit) Rules, 2014 as printed in your study material.
  • In written answers, split the reply into records, then audit. Examiners give separate marks for each.
  • Quote Section 148 sub-section numbers only where you are sure: (1) records, (2) audit order, (3) appointment, (5) report to Board, (6) 30 days to Government.
  • Close every applicability answer with a clear yes or no and the action the company must take.

Practice questions from Basics of Cost Audit

Cost Records and Cost Accounting Records Rules in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cost Records and Cost Accounting Records Rules: frequently asked questions

Who must maintain cost records under Section 148?

Companies in the classes the Central Government has specified by order and in the Cost Records and Audit Rules, 2014. These are companies engaged in the specified goods or services that meet the applicability thresholds prescribed in the Rules. It is not a rule for every company.

What is the difference between regulated and non-regulated sectors in the Rules?

The Rules list specified industries in two groups. Regulated sectors have a sector regulator or government price control, such as power or telecom. Non-regulated sectors are other listed industries such as cement or steel. Section 148(1) requires consultation with the regulator for companies regulated under a special Act.

Do all companies that keep cost records need a cost audit?

No. Section 148(2) lets the Government direct a cost audit only for covered companies with a prescribed net worth or turnover. Many companies keep cost records but are not audited.

Can the statutory auditor also be the cost auditor?

No. Under Section 148(3), a person appointed under section 139 as auditor of the company cannot be appointed to audit cost records. The cost audit is also in addition to the section 143 audit.