Cost and Management Audit · Companies (Cost Records and Audit) Rules, 2014
Appointment of Cost Auditor under Companies Act, 2013
Updated 11 October 2026 · Fact-checked
Under Section 148(3) of the Companies Act, 2013, the Board appoints a cost accountant as cost auditor. Members ratify the remuneration. The auditor must not be the company's Section 139 statutory auditor. The company files Form CRA-2 with the Central Government. Answer by covering who, when, consent, remuneration and filing.
Understand Appointment of Cost Auditor
A company covered by a cost audit order under Section 148(2) must have its cost records audited. The audit is done by a cost accountant. Section 148(3) says the cost auditor is appointed by the Board. The Board does not fix the remuneration alone. It is determined by the members in the manner prescribed.
The Act has one hard bar. A person appointed under Section 139 as the company's auditor cannot be appointed to audit cost records. This keeps the financial audit and the cost audit separate. The cost audit is in addition to the audit under Section 143 (Section 148(4)).
The cost auditor must comply with the cost auditing standards. These are issued by the Institute of Cost Accountants of India with the approval of the Central Government. The Act also applies to the cost auditor, so far as applicable, the qualifications, disqualifications, rights, duties and obligations of auditors under the Chapter (Section 148(5)). So independence rules matter here too.
The detailed procedure sits in the Companies (Cost Records and Audit) Rules, 2014, mainly Rule 6. In practice it runs like this. The Audit Committee, where the company has one, recommends. The Board gets the written consent and a certificate from the proposed auditor. The Board appoints. Members ratify the remuneration. The company informs the auditor and files the prescribed form, CRA-2. The cost auditor reports to the Board (Section 148(5) proviso).
The Rules are not in the text supplied for this page. Learn the Rule 6 timings and form details from the ICMAI study material and the current Rules. Do not guess them.
Key rules to remember
- 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.
How to solve Appointment of Cost Auditor questions
Use this order for any question on appointing a cost auditor. It keeps the answer complete and gives a marker clear points to tick.
- 1Check if the company is covered by a cost audit direction under Section 148(2). If not, no cost auditor is needed.
- 2Identify who may be appointed: a cost accountant, and not the Section 139 statutory auditor.
- 3Test eligibility and independence. Apply the auditor disqualification and independence rules, so far as applicable (Section 148(5)).
- 4State the process: Audit Committee recommendation where one exists, written consent and eligibility certificate from the auditor, then Board appointment.
- 5Deal with remuneration: the Board proposes, and members determine or ratify it in the prescribed manner.
- 6Mention intimation to the auditor and filing of Form CRA-2. Quote the time limit from the Rules only if you are sure of it.
- 7Close with the reporting line: report to the Board, then a copy to the Central Government within 30 days, and non-compliance penalties under Section 148(8).
- 8Give a clear conclusion on the case facts, such as whether the appointment is valid.
Quickest way: Four-check test for a valid cost auditor appointment
When to use it: Use for MCQs and short case questions asking whether an appointment is valid.
- Who: is the person a cost accountant?
- Conflict: is the person the company's Section 139 auditor? If yes, invalid.
- Appointer: was the Board the appointing authority?
- Remuneration: did the members determine or ratify it? If only the Board fixed it, it is defective.
Common mistakes in Appointment of Cost Auditor
Saying members appoint the cost auditor.
Students mix this up with the statutory auditor, who is appointed at the general meeting.
Fix: Remember Section 148(3): the Board appoints. The members' role is on remuneration only.
Saying the Board fixes the cost auditor's remuneration.
The Board does propose the amount, so the two steps blur.
Fix: Write that remuneration is determined by the members in the prescribed manner, as the Act says.
Allowing the statutory auditor to do the cost audit as well.
It seems efficient, and both are audits.
Fix: Quote the first proviso to Section 148(3): a Section 139 auditor cannot be appointed for the cost audit.
Saying the cost audit report goes to the Central Government directly from the auditor.
Students link the audit with the filing.
Fix: The auditor reports to the Board. The company then furnishes the report to the Central Government within 30 days of receipt (Section 148(6)).
Treating the cost audit as a replacement for the Section 143 audit.
Both examine accounts.
Fix: Section 148(4) says it is in addition to the Section 143 audit.
Giving exact Rule 6 time limits from memory without certainty.
Time limits are easy to confuse.
Fix: Learn them from the current Rules. If unsure, describe the sequence and name the form without a wrong number.
Worked examples
Example 1
Sundaram Auto Components Ltd is covered by a cost audit direction under Section 148. Its Board wants to appoint Mehta & Associates, chartered accountants who are also its statutory auditors under Section 139, as cost auditors and fix their fee at the Board meeting itself. Advise the company.
Show the solution
- Coverage: the company is under a cost audit direction, so a cost auditor is required under Section 148(2).
- Qualification: Section 148(3) requires a cost accountant. The firm is described only as chartered accountants, so it does not qualify on that description.
- Conflict: the first proviso to Section 148(3) bars a person appointed under Section 139 as the company's auditor from being appointed for the cost audit. The firm is the statutory auditor, so it is barred.
- Remuneration: the fee must be determined by the members in the prescribed manner. The Board alone cannot fix it.
- Advice: the Board should appoint an independent cost accountant, obtain written consent and certificate, and place the remuneration before the members.
Answer: The proposed appointment is invalid. The Board should appoint a cost accountant who is not the Section 139 auditor. The remuneration must be determined by the members in the prescribed manner, and CRA-2 should be filed after appointment.
Example 2
MCQ: Under Section 148 of the Companies Act, 2013, the cost auditor of a company covered by a cost audit order is appointed by which of the following? (a) Members at the annual general meeting (b) Comptroller and Auditor-General of India (c) The Board of Directors (d) The Registrar of Companies
Show the solution
- Recall Section 148(3): the audit shall be conducted by a cost accountant who shall be appointed by the Board.
- Option (a) describes the statutory auditor route under Section 139(1), so it is wrong.
- Option (b) applies to auditors of Government companies under Section 139(5), not cost auditors.
- Option (d) is wrong because the Registrar has no appointing role.
Answer: Option (c): the Board of Directors appoints, and the members determine the remuneration.
Exam tips
- Open any answer with Section 148(3) and its two provisos. They carry most of the marks.
- Keep the three roles separate: the Board appoints, the members determine remuneration, and the auditor reports to the Board.
- In case scenarios, check first whether the auditor is also the Section 139 auditor. This is a common trap.
- Name Form CRA-2 for appointment and keep it distinct from CRA-3, which is the cost audit report.
- Quote Rule 6 time limits only if you know them exactly. A clear sequence of steps scores better than a wrong number.
Practice questions from Companies (Cost Records and Audit) Rules, 2014
- Under section 148 of the Companies Act, 2013, which standards must a cost auditor comply with when conducting the audit of cost records?
- Ganga Steels Ltd received a cost audit report that contains a qualification on the allocation of overheads, prepared under a direction under…
- Under section 148(3) of the Companies Act, 2013, who appoints the cost auditor, and how is the remuneration fixed?
- Under section 148 of the Companies Act, 2013, who has the power to appoint the cost auditor of a company that is required to get its cost re…
- Vindhya Cements Ltd received the cost audit report on 12 March. The report contains two qualifications. As per section 148 of the Companies …
Appointment of Cost Auditor in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Appointment of Cost Auditor: frequently asked questions
Who appoints the cost auditor of a company?
The Board of Directors appoints a cost accountant as cost auditor under Section 148(3). The members do not appoint but determine the remuneration in the prescribed manner. The Audit Committee's recommendation is taken where the company has one.
Can the statutory auditor also be the cost auditor?
No. The first proviso to Section 148(3) says no person appointed under Section 139 as the company's auditor can be appointed to conduct the audit of cost records. The two roles must be held by different persons.
Who fixes the remuneration of the cost auditor?
The remuneration is determined by the members in the manner prescribed. In practice the Board recommends the amount and the members ratify it. A fee fixed only by the Board is not enough.
What is Form CRA-2?
CRA-2 is the form the company files with the Central Government to inform it of the cost auditor's appointment. Check the filing time limit in Rule 6 of the Companies (Cost Records and Audit) Rules, 2014. Do not rely on memory for the number of days.
To whom does the cost auditor submit the report?
The cost auditor submits the report to the Board of Directors. The company then furnishes a copy to the Central Government within thirty days of receiving it, with full information and explanation on every reservation or qualification.