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CMA Final · Cost and Management Audit

Companies (Cost Records and Audit) Rules, 2014 for CMA Final

The Companies (Cost Records and Audit) Rules, 2014 work under Section 148 of the Companies Act, 2013. They decide which companies must keep cost records, which must get them audited, who the cost auditor is, and how the report is filed. Solve questions by checking sector, turnover, exemptions, then the procedure.

What this chapter covers

This chapter is the legal base of cost audit in India. Section 148 gives the Central Government the power to order that cost records be kept and, for some companies, audited. The Rules turn that power into working detail: the covered sectors (regulated and non-regulated), the size tests, the form and manner of cost records, the appointment process, the report and its filing, and the consequences of default.

Read it as a chain. First: is the company covered? Next: what records must it keep? Then: who audits them and how are they appointed? After that: what does the auditor report, to whom, and what happens next? Finally: what are the duties of the auditor and the company, and what is the penalty for default? Every question in this chapter fits one link of this chain.

The chapter connects to the rest of Paper 17. Cost Auditing Standards, the cost audit report content, and cost audit programme and techniques all assume you know who is auditing and under what authority. Section 148(3) itself says the cost auditor must comply with the cost auditing standards, so this chapter and the standards chapters support each other.

This chapter is mostly rule-based, so it suits both MCQs and short written answers. Questions usually give a company with a sector and turnover and ask whether cost records or cost audit apply, who can be appointed, or what the next step is. Case scenarios in Section A can lean on this logic. If you know the chain of conditions and the procedure, you can score steadily here, and it also makes later chapters on cost audit reports easier to follow.

Companies (Cost Records and Audit) Rules, 2014: topics in the order to study them

  1. 1Section 148 and Applicability of Cost RecordsStart with the Act. Everything in the Rules flows from the Central Government's power under Section 148(1) and (2).
  2. 2Regulated and Non-Regulated Sectors under the RulesApplicability turns on the sector a company belongs to, so learn the sector split before the size tests.
  3. 3Maintenance of Cost Records and Cost Accounting RecordsOnce you know who is covered, learn what they must keep, since the audit is of these records.
  4. 4Appointment of Cost AuditorThe auditor is appointed to audit the records, so this follows naturally after the records.
  5. 5Cost Audit Report and Form CRA-3The report is the output of the audit. It makes sense only after you know the auditor and the records.
  6. 6Rights, Duties and Penalties for DefaultFinish with the duties of the auditor and company and the penalties, which tie the whole process together.

How to prepare Companies (Cost Records and Audit) Rules, 2014

This chapter is about conditions, forms and timelines, so prepare it as a flowchart and then test yourself on cases.

  1. Read Section 148 line by line. Note who orders, who appoints (the Board), who sets remuneration (the members, as prescribed), and to whom the report goes (the Board of Directors).
  2. Build a one-page applicability flowchart: sector, then records or audit, then size tests, then exemptions. Take the exact thresholds and exemptions from the Rules as in your study material, and revise them often.
  3. Make a table of the forms in this chapter (for example CRA-1 to CRA-4) with what each is for, who files it and the time limit. Learn the forms by purpose, not just by number.
  4. Learn the appointment steps in order: eligibility of the cost auditor, the Board's appointment, the remuneration process, and the intimation to the Central Government.
  5. Practise applicability cases. Write the sector, the turnover, the test applied and the conclusion in two or three lines each.
  6. Learn the penalty route: Section 148(8) links default to Section 147 for the company, officers and the cost auditor. Then do a timed mixed set of MCQs on the whole chapter.

Common mistakes in Companies (Cost Records and Audit) Rules, 2014

  • Treating cost records and cost audit as the same thing.

    Fix: Section 148(1) is about keeping records and 148(2) is about auditing them. A company can need records without needing an audit. Always test them separately.

  • Saying the cost auditor reports to the Central Government.

    Fix: The auditor submits the report to the Board of Directors. The company then furnishes it to the Central Government within thirty days of receiving it.

  • Letting the statutory auditor also do the cost audit.

    Fix: The first proviso to Section 148(3) bars a person appointed as auditor under Section 139 from being appointed for the cost audit of that company.

  • Writing thresholds and exemptions from memory without checking them.

    Fix: Learn them from the current Rules in your study material, keep them on one revision sheet, and in answers state the sector first and then the test.

  • Forgetting that cost audit is in addition to the Section 143 audit.

    Fix: Remember Section 148(4): both audits exist side by side, each with its own auditor, report and purpose.

  • Ignoring penalties for the cost auditor.

    Fix: Section 148(8) covers both. The company and officers fall under Section 147(1), and the cost auditor under Section 147(2) to (4).

Last-day revision: Companies (Cost Records and Audit) Rules, 2014

  • 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).

Companies (Cost Records and Audit) Rules, 2014 practice questions

Companies (Cost Records and Audit) Rules, 2014 in other exams

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

Companies (Cost Records and Audit) Rules, 2014: frequently asked questions

Which section of the Companies Act, 2013 deals with cost audit?

Section 148. It lets the Central Government direct that cost records be kept and, for covered companies above prescribed limits, that they be audited. The Companies (Cost Records and Audit) Rules, 2014 give the details.

Who appoints the cost auditor and who fixes the remuneration?

The Board appoints the cost auditor. The remuneration is determined by the members in the prescribed manner. Remember that the person appointed as statutory auditor under Section 139 cannot be appointed as cost auditor of the same company.

Do I need to memorise turnover limits for this chapter?

Yes, learn the applicability tests as given in the Rules in your study material, because questions often give a company's figures. Revise them from one sheet and check that your source is the current version of the Rules.

What happens if a company does not comply with Section 148?

Under Section 148(8), the company and every officer in default are punishable as provided in Section 147(1). The cost auditor who is in default is punishable as provided in Section 147(2) to (4).