Cost and Management Audit · Basics of Cost Audit

Section 148 and Applicability of Cost Audit

Updated 11 October 2026 · Fact-checked

Section 148 lets the Central Government order specified classes of companies to keep cost records. For some of those companies, with prescribed net worth or turnover, it can also order a cost audit by a cost accountant. The audit is separate from the Section 143 audit. The thresholds sit in the Cost Records and Audit Rules.

Understand Section 148 and Applicability of Cost Audit

Section 148 has two layers. The first layer is cost records. Under sub-section (1), the Central Government may, by order, direct a class of companies engaged in producing prescribed goods or providing prescribed services to include particulars of material, labour or other items of cost in their books of account.

The second layer is cost audit. Under sub-section (2), if the Government thinks it necessary, it may direct that cost records of companies covered by sub-section (1) be audited. This applies only to companies with a prescribed net worth or a prescribed turnover. So every company that must audit its cost records must first be a company that must keep them. The reverse is not true.

The Act gives the power. The Rules give the numbers. The Act does not state the net worth or turnover limits; it says "as may be prescribed". When a question asks for a threshold, you answer from the Companies (Cost Records and Audit) Rules, not from Section 148. Check the latest Rules and amendments before the exam.

Cost audit is an extra audit. Under sub-section (4) it is in addition to the audit under Section 143. The cost auditor is a cost accountant appointed by the Board, and the remuneration is determined by the members in the prescribed manner. A person appointed as the company's auditor under Section 139 cannot be appointed for the cost audit. The cost auditor must follow the cost auditing standards, which are issued by the Institute of Cost Accountants of India with the approval of the Central Government.

The cost auditor reports to the Board of Directors. The company then has thirty days from receiving a copy of the report to send it to the Central Government, with full information and explanation on every reservation or qualification. The Government can call for more information. Default attracts penalties for the company, its officers in default and the cost auditor.

Key rules to remember

Cost records (s.148(1)): Central Government order + prescribed class of companies + prescribed goods or services → cost items included in books of account; Before an order for a class of companies regulated under a special Act, the Government must consult that regulator.
Cost audit trigger (s.148(2)): Covered by s.148(1) + prescribed net worth or prescribed turnover + Government opinion that audit is necessary → order for cost audit; The limits are in the Rules. Section 148 does not state amounts.
Who audits (s.148(3)): Cost accountant appointed by the Board; remuneration determined by members as prescribed; A Section 139 auditor of the company cannot be appointed as cost auditor.
Standards (s.148(3) second proviso): Cost auditor must comply with the cost auditing standards; The standards are issued by the Institute of Cost Accountants of India with Central Government approval.
Relation to statutory audit (s.148(4)): Cost audit is in addition to the Section 143 audit; It never replaces the financial audit.
Report (s.148(5) and (6)): Cost auditor reports to the Board; company sends a copy to the Central Government within 30 days of receipt, with full information and explanation on every reservation or qualification; The 30 days run from the date the company receives a copy of the report.
Default (s.148(8)): Company and officers in default: as in s.147(1). Cost auditor in default: as in s.147(2) to (4); Quote the sub-section references only if you are sure; otherwise say the penalties follow Section 147.

How to solve Section 148 and Applicability of Cost Audit questions

Use this method for any question asking whether a company needs cost records or cost audit, or what Section 148 requires.

1Identify the company's activity. Check whether the Central Government order and the Rules cover its goods or services. Without this, neither cost records nor cost audit applies.
2Decide the first layer. If the company falls in a prescribed class, state that it must include cost particulars in its books of account under s.148(1).
3Test the second layer. Compare the company's net worth or turnover with the limits in the Cost Records and Audit Rules, and note any sector-specific conditions.
4Remember that cost audit needs a Government direction under s.148(2). Coverage under the Rules alone is not the whole story; say the direction is made in the manner specified in the order.
5State who audits: a cost accountant appointed by the Board. Confirm he or she is not the company's Section 139 auditor.
6Describe the process. Report goes to the Board, and the company files with the Central Government within 30 days of receiving the copy, with explanations on reservations.
7Close with a clear conclusion and the consequence of default, stating the company and officers are liable under Section 147.

Quickest way: Two-gate test for applicability

When to use it: Use it for short case questions and MCQs asking whether a company needs cost records or cost audit.

Gate 1: is the product or service in the prescribed list? If no, no cost records and no cost audit.
Gate 2: if yes, cost records are required. Now check net worth or turnover against the Rules' limits.
If a limit is crossed and the Rules or order require it, cost audit applies. Otherwise, only records.
Check the auditor: a cost accountant, not the Section 139 auditor.
Write the 30-day filing rule if the question asks about the report.

Common mistakes in Section 148 and Applicability of Cost Audit

Quoting net worth or turnover limits as part of Section 148.
Students merge the Act with the Rules because they are studied together.
Fix: Write that the Act says "as may be prescribed" and the figures are in the Cost Records and Audit Rules.
Saying every company that keeps cost records must get a cost audit.
The two sub-sections are read as one requirement.
Fix: Records come from s.148(1). Audit comes from s.148(2) and needs the prescribed net worth or turnover plus a Government direction.
Treating cost audit as a replacement for the statutory audit.
Both are called audits of the same company.
Fix: Quote s.148(4): the cost audit is in addition to the audit under Section 143.
Appointing the company's statutory auditor as cost auditor.
It looks efficient and cheaper.
Fix: The first proviso to s.148(3) bars a person appointed under Section 139 from the cost audit. The cost auditor must be a cost accountant.
Saying the cost auditor reports to the Central Government or the members.
Students confuse the report with the filing.
Fix: The cost auditor submits the report to the Board. The company then furnishes a copy to the Central Government within thirty days of receipt.
Writing that the 30 days run from the year-end.
Other filing deadlines are tied to the balance sheet date.
Fix: Under s.148(6) the period starts on the date the company receives a copy of the cost audit report.

Worked examples

Example 1

Meridian Alloys Ltd makes goods that fall in a class notified for cost records. Its net worth and turnover are below the limits in the Cost Records and Audit Rules. The Board wants to know what Section 148 requires. Advise.

Show the solution

Check coverage. The goods fall in a class covered by the order, so s.148(1) applies and the company must include prescribed cost particulars in its books of account.
Check the audit layer. s.148(2) allows an audit order only for covered companies with the prescribed net worth or turnover.
The company is below both limits, so the cost audit direction does not reach it.
Conclude that the company keeps cost records but does not need a cost audit unless its position later crosses the limits.

Answer: Meridian must keep cost records under s.148(1) but is not required to get its cost records audited while it stays below the prescribed net worth and turnover limits.

Example 2

Kaveri Pumps Ltd is covered for cost audit. The Board proposes to appoint its statutory auditor, a chartered accountancy firm appointed under Section 139, as cost auditor to save fees. Also, the cost audit report was received by the company on 10 July. By which date must the company furnish it to the Central Government? Advise on both points.

Show the solution

Appointment. s.148(3) requires 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 for the audit of cost records. The proposal is not permitted.
The Board must appoint a different cost accountant, with remuneration determined by members in the prescribed manner.
Filing. s.148(6) gives thirty days from the date of receipt of a copy of the report.
Thirty days from 10 July: 21 days remain in July (11 to 31 July), then 9 days into August, so the last day is 9 August.
The report goes with full information and explanation on every reservation or qualification.

Answer: The proposal is not valid; a separate cost accountant must be appointed. The company must furnish the report to the Central Government by 9 August, with explanations on every reservation or qualification.

Exam tips

For applicability questions, always separate the Act (power) from the Rules (thresholds). Examiners reward that clarity.
In case scenarios, check the product or service first, then net worth or turnover, then the auditor. This order mirrors the usual marking scheme.
Learn the three proviso-level points: no Section 139 auditor, compliance with cost auditing standards, and report to the Board.
For date questions, count thirty days from receipt of the report copy, not from the report date or year-end.
In MCQs, watch for statements that cost audit replaces the Section 143 audit. They are wrong.

Practice questions from Basics of Cost Audit

Section 148 and Applicability of Cost Audit in other exams

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

Section 148 and Applicability of Cost Audit: frequently asked questions

What does Section 148 of the Companies Act, 2013 deal with?

It lets the Central Government direct certain classes of companies to include cost particulars in their books of account. It also lets the Government order an audit of cost records for covered companies with prescribed net worth or turnover. A cost accountant conducts that audit.

Where do I find the turnover and net worth limits for cost audit?

Not in Section 148. The Act says the amounts are as may be prescribed. They are in the Companies (Cost Records and Audit) Rules, so revise the latest version and amendments.

Can the statutory auditor also do the cost audit?

No. The first proviso to Section 148(3) says no person appointed under Section 139 as auditor of the company can be appointed to audit cost records. The cost auditor must be a cost accountant.

Who receives the cost audit report?

The cost auditor submits it to the Board of Directors. The company must then furnish a copy to the Central Government within thirty days of receiving it, with full information and explanation on every reservation or qualification.

Is cost audit in place of the normal audit?

No. Section 148(4) says the cost audit is in addition to the audit conducted under Section 143.