Cost and Management Audit · Preparation and Filing of Cost Audit Report

Section 148 and Cost Audit Applicability for CMA Final

Updated 11 October 2026 · Fact-checked

Section 148 of the Companies Act, 2013 lets the Central Government order specified companies to keep cost records and, above prescribed net worth or turnover limits, to get those records audited by a cost accountant. The Companies (Cost Records and Audit) Rules, 2014 set the sectors, thresholds and exemptions. You solve questions by checking sector, then limits, then exemptions.

Understand Section 148 and Cost Audit Applicability

Section 148 is the legal source of cost records and cost audit in India. It works in two layers. First, 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 utilisation of material or labour, or other prescribed cost items, in their books of account. This is the cost records layer.

Second, under sub-section (2), if the Central Government thinks it necessary, it may direct that the audit of cost records of such companies be conducted. This applies to companies covered under sub-section (1) that have a prescribed net worth or turnover. This is the cost audit layer. So cost audit can never apply to a company that is not first covered by the cost records requirement.

The Act only gives the power. The numbers and the list of products and services sit in the Companies (Cost Records and Audit) Rules, 2014, read with the Table of regulated and non-regulated sectors. Those Rules define who must keep records, who must also get an audit, and who is exempt. In the exam, always check the Rules' thresholds. Do not rely on the Act alone, because the Act contains no rupee limits.

Three further points in the section matter for applicability and the questions around it. The cost audit is in addition to the statutory audit under section 143 (sub-section 4). The cost auditor must be a cost accountant appointed by the Board, and the person who is the company's section 139 auditor cannot be appointed for cost audit (sub-section 3). The audit report goes to the Board, and the company must furnish it to the Central Government within thirty days of receiving the copy, with full information and explanation on every reservation or qualification (sub-sections 5 and 6).

Think of applicability as a funnel: sector in the Rules, then size limits, then exemptions. Only a company that passes through all three must have a cost audit.

Key rules to remember

Two-layer structure of Section 148: Cost records: s.148(1) | Cost audit: s.148(2), only for companies already covered by s.148(1) and meeting prescribed net worth or turnover; Audit applicability is a subset of cost records applicability.
Who audits: Cost auditor = cost accountant appointed by the Board (s.148(3)); not the company's s.139 auditor; Remuneration is determined by members in the prescribed manner.
Relation to statutory audit: Cost audit is in addition to audit under s.143 (s.148(4)); Cost audit never replaces the financial statement audit.
Report submission: Report to Board of Directors (s.148(5) proviso); company files with Central Government within 30 days of receiving the copy (s.148(6)); The 30 days run from receipt of the report copy by the company, not from year end.
Standards to follow: Cost auditor must comply with cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval (s.148(3)); Mandatory compliance, not guidance.
Default: Company and officer in default: as per s.147(1); cost auditor in default: s.147(2) to (4) (s.148(8)); Quote the penalty cross-reference, not figures, unless you are sure.
Applicability test (Rules): Step 1 sector in the Rules → Step 2 net worth/turnover limits → Step 3 exemptions; Use the exact rupee limits and exemption conditions from the Rules as prescribed in your study material.

How to solve Section 148 and Cost Audit Applicability questions

Use the same funnel for any applicability question, whether it is an MCQ or a case-based descriptive answer.

1Identify the company's products or services and match them with the sectors listed in the Rules. State whether it is a regulated or non-regulated sector item.
2Decide whether cost records are required under s.148(1) read with the Rules. If the company is outside every listed sector, say neither requirement applies.
3Take the overall turnover and net worth figures from the case and compare them with the Rules' limits for records and for audit separately.
4Check whether the company is in a regulated or non-regulated sector, since the audit limits differ between them in the Rules.
5Check the exemptions in the Rules, such as companies with specified export or SEZ-type conditions or those covered by the prescribed exemption categories. Apply the exact conditions given in the question.
6Conclude clearly: records only, records and audit, or exempt. Quote the sub-section of s.148 that supports it.
7Add the consequential points the question needs: Board appoints a cost accountant, section 139 auditor cannot do it, report to Board, filing within 30 days, default under s.147.

Quickest way: Sector, size, exemption in 60 seconds

When to use it: Use it for MCQs and for the opening line of a descriptive answer when time is short.

Write S, Z, E on the margin: Sector, siZe, Exemption.
Tick S: is the product or service in the Rules? If not, stop: no cost records, no audit.
Tick Z: compare turnover and net worth with the limits for records, then for audit. Fail the audit limit means records only.
Tick E: scan the case for any exemption fact. If found and conditions are fully met, answer exempt from audit.
Finish with one line on appointment: Board appoints a cost accountant, not the s.139 auditor.

Common mistakes in Section 148 and Cost Audit Applicability

Saying the Act itself fixes the turnover and net worth limits.
Students merge the Act and the Rules into one source.
Fix: Section 148 only empowers the Central Government and says limits are 'prescribed'. The rupee limits come from the Companies (Cost Records and Audit) Rules, 2014.
Treating every company that keeps cost records as needing a cost audit.
The two requirements are learned as one.
Fix: Audit applies under s.148(2) only to companies covered by s.148(1) that also meet the prescribed net worth or turnover. Records alone can apply.
Letting the company's statutory auditor also be the cost auditor.
Both are seen as audits of the same books.
Fix: The first proviso to s.148(3) bars a person appointed under s.139 as auditor from being appointed for cost audit. Cost audit also needs a cost accountant.
Saying cost audit replaces or reduces the section 143 audit.
Students think one audit covers the other.
Fix: s.148(4) says the cost audit is in addition to the section 143 audit.
Counting the 30 days for filing the report from the balance sheet date.
Other filing deadlines run from year end.
Fix: s.148(6) runs thirty days from the company's receipt of a copy of the cost audit report. The report is first submitted to the Board.
Ignoring exemptions because the thresholds are crossed.
Students stop after the size test.
Fix: Always run the exemption check last. A company over the limits can still be exempt if the Rules' conditions are met.

Worked examples

Example 1

Aarav Polymers Ltd is covered by the Rules for cost records under s.148(1) and also meets the prescribed net worth or turnover limit for audit. Its statutory auditor under section 139 is Mehta & Co, chartered accountants, who offer to do the cost audit too to save fees. Advise the company.

Show the solution

Cost records: the company is covered under s.148(1), so it must include the prescribed cost particulars in its books of account.
Cost audit: it meets the prescribed limit, so if the Central Government has directed audit under s.148(2), the cost records must be audited.
Who audits: s.148(3) requires a cost accountant appointed by the Board.
Independence: the first proviso to s.148(3) bars a person appointed under s.139 as auditor from being appointed for cost audit. Mehta & Co cannot be appointed.
Relation to financial audit: s.148(4) says cost audit is in addition to the s.143 audit, so the company still needs its statutory audit.

Answer: The company must have its cost records audited by a cost accountant appointed by the Board. Mehta & Co cannot do it while they are the section 139 auditor, and the cost audit is in addition to, not in place of, the statutory audit.

Example 2

Bharat Castings Ltd received the cost audit report copy from its cost auditor on 10 September. The report contains two qualifications. State to whom the auditor submits the report, what the company must do, and by when.

Show the solution

Submission: the proviso to s.148(5) says the cost accountant submits the report to the Board of Directors.
Filing: under s.148(6) the company must furnish the Central Government with the report within thirty days from the date of receipt of a copy.
Content of filing: the report must come with full information and explanation on every reservation or qualification, so both qualifications need an explanation.
Deadline: thirty days from 10 September. September has 30 days, so 20 days remain in September and 10 days fall in October. The last date is 10 October.
Follow-up: under s.148(7) the Central Government may call for further information, which the company must furnish in the time specified.

Answer: The cost auditor submits the report to the Board. The company must furnish it to the Central Government, with full information and explanation on both qualifications, by 10 October. It must also answer any further call for information within the time specified.

Exam tips

Open every applicability answer with the section: s.148(1) for records, s.148(2) for audit. It shows the examiner you know the two layers.
In case scenarios, underline the product, turnover, net worth and any exemption fact before writing. Examiners hide the deciding fact in one line.
Use the Rules' exact limits and conditions from your updated study material. Do not quote limits from memory if you are unsure, and state the rule in structure if figures are unavailable.
For MCQs, watch for traps: s.139 auditor as cost auditor, audit replacing s.143, and 30 days counted from year end. Each is wrong under the text of s.148.
Finish written answers with a clear conclusion: records only, records and audit, or exempt.

Practice questions from Preparation and Filing of Cost Audit Report

Section 148 and Cost Audit Applicability 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 Cost Audit Applicability: frequently asked questions

What does Section 148 of the Companies Act, 2013 say?

It empowers the Central Government to order certain classes of companies to keep cost records, and to order audit of those records where prescribed net worth or turnover is met. A cost accountant appointed by the Board conducts the audit. The audit is in addition to the section 143 audit.

Where do I find the cost audit thresholds?

They are in the Companies (Cost Records and Audit) Rules, 2014, not in the Act. Section 148 only says net worth or turnover as may be prescribed. Learn the limits for regulated and non-regulated sectors from the Rules as given in your study material.

Can the statutory auditor also be the cost auditor?

No. The first proviso to section 148(3) says a person appointed under section 139 as an auditor of the company cannot be appointed for cost audit. The cost auditor must be a cost accountant appointed by the Board.

Who gets the cost audit report and when is it filed?

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

What happens if the company defaults under Section 148?

Under section 148(8), the company and every officer in default are punishable as provided in section 147(1). A defaulting cost auditor is punishable under section 147(2) to (4).