Corporate Accounting and Auditing · Cost Audit

Cost Records and Maintenance Requirements Under the Companies Act

Updated 10 October 2026 · Fact-checked

Cost records are books of account that carry particulars of material, labour and other cost items. Under section 148(1), the Central Government can direct specified classes of companies to include them in their books. Management must keep them, and a cost auditor audits them where section 148(2) applies.

Understand Cost Records and Maintenance Requirements

A normal set of books records money flows. It does not show what each product or service cost. Section 148 fills that gap. It lets the Central Government direct certain companies to also record cost particulars in their books of account.

The power works in steps. Under section 148(1), the Government may, by order, direct a class of companies, engaged in producing prescribed goods or providing prescribed services, to include particulars of the utilisation of material or labour, or other prescribed items of cost, in their books. If the order concerns a class of companies under a special Act, the Government must first consult the regulator set up under that Act.

So the duty to keep cost records is not universal. It depends on the class of company, the goods or services, and the order and rules made under the section. The details of which companies, which products, which thresholds and the exact record formats sit in the rules, not in the section. Learn those from your ICMAI study material and the latest rules. This page does not quote thresholds because they are changed from time to time.

Cost records are a separate matter from cost audit. Section 148(2) says that, if the Government thinks it necessary, it may direct an audit of cost records for companies covered by sub-section (1) that have a prescribed net worth or turnover. So a company can have to keep cost records yet not be required to get them audited. Cost records come first, and audit sits on top of them.

Management is responsible for the records. Under SCA 103, the cost auditor checks whether the cost reporting framework used by management to prepare cost statements is in line with the Companies Act and the rules under it. SCA 101 also lists the prescribed cost reporting framework, and any need to reconcile it with the financial reporting framework, as a planning matter. Good records make both tasks easier. Section 120 also allows documents and records kept by a company to be maintained in electronic form, in the prescribed form and manner.

Key rules to remember

Direction to include cost particulars: Section 148(1): Central Government order → class of companies → cost items included in books of account; Applies to prescribed classes producing prescribed goods or providing prescribed services. Consult the sector regulator first for companies under a special Act.
Cost audit trigger: Section 148(2): companies covered by 148(1) + prescribed net worth or turnover + Government order → audit of cost records; Cost records and cost audit are separate duties. Records alone do not mean an audit.
Who audits: Section 148(3): cost accountant appointed by the Board; the section 139 auditor cannot be appointed for it; Remuneration is determined by the members in the prescribed manner. Cost auditing standards must be followed.
Report recipient: Section 148(5) proviso: cost audit report goes to the Board of Directors; The company then has 30 days from receiving a copy to furnish it to the Central Government with explanation of every reservation or qualification (section 148(6)).
Electronic records: Section 120: records may be kept in electronic form in the prescribed form and manner; Applies to documents, records and registers a company must keep under the Act.
Duty to assist: Section 148(5): company must give all assistance and facilities to the cost auditor; Auditor qualifications, rights and duties apply so far as applicable.

How to solve Cost Records and Maintenance Requirements questions

Use this method for any question on cost records, whether it is a short note, a case study or a question on management duties.

1Identify what is asked: the duty to keep cost records, the audit of those records, or the cost auditor's role. Keep these separate.
2Name the source: section 148(1) for the direction to include cost items in books of account.
3Check applicability. Is the company in a class covered by the order and rules, for the prescribed goods or services? If the facts do not say, state the condition rather than assume it.
4If audit is in question, apply section 148(2): net worth or turnover thresholds and a Government direction are needed.
5State management's responsibilities: keep the records, give the auditor all assistance and facilities, and prepare cost statements on a framework in line with the Act and rules.
6Add the link to the cost auditor: SCA 103 requires checking that the framework is in line with the Act, and SCA 101 notes the need to reconcile with financial reporting.
7Conclude with the consequence: default makes the company and officers in default punishable as provided in section 147(1), under section 148(8).

Quickest way: Three-question check

When to use it: For MCQs and short case questions where you have under two minutes.

Ask: is there a Government order for this class of company and product? If no, no cost records duty arises under section 148(1).
Ask: does the question mention an audit? Then check net worth or turnover thresholds and a direction under section 148(2).
Ask: who does what? Management keeps records and assists. A cost accountant appointed by the Board audits. The report goes to the Board.

Common mistakes in Cost Records and Maintenance Requirements

Saying every company must keep cost records.
Students read section 148 as a general rule.
Fix: Write that only classes of companies covered by the Government order and rules, for the prescribed goods or services, must do so.
Treating cost records and cost audit as the same thing.
Both come from section 148 and appear in one chapter.
Fix: Keep sub-section (1) for records and sub-section (2) for audit. A company may need records without an audit.
Writing that the statutory auditor can also do the cost audit.
Students assume one auditor is enough.
Fix: Quote the first proviso to section 148(3): a person appointed under section 139 as auditor cannot be appointed for the cost audit of that company.
Saying the cost auditor reports to the shareholders or directly to the Government.
Mixing it up with the statutory audit report.
Fix: The report is submitted to the Board of Directors. The company then furnishes it to the Central Government within 30 days of receiving a copy.
Quoting thresholds or form details from memory without checking.
Rules are amended and old figures stay in notes.
Fix: Write the condition in words (prescribed net worth or turnover) unless the question gives figures. Revise the current rules before the exam.
Ignoring management's role.
Students focus only on the auditor.
Fix: Always add that the company must give the auditor all assistance and facilities, and that default attracts the penalty in section 148(8).

Worked examples

Example 1

Sunrise Textiles Ltd is in a class of companies for which the Central Government has issued an order under section 148(1). The CFO says the company need not keep cost records because it does not have a cost audit. Is the CFO correct? Explain.

Show the solution

Section 148(1) lets the Government direct a class of companies to include cost particulars in their books of account. The company is in such a class.
So the duty to include cost items in the books arises from the order itself.
Cost audit is a separate matter under section 148(2). It needs a Government direction and the prescribed net worth or turnover.
Not being subject to a cost audit therefore does not remove the duty to keep the records.

Answer: The CFO is not correct. The duty to keep cost records arises under section 148(1) from the order covering the company. Cost audit under section 148(2) is an additional step with its own conditions.

Example 2

Ganga Chemicals Ltd is directed to get its cost records audited. The Board proposes to appoint its statutory auditor, appointed under section 139, as cost auditor for a lower fee. Advise the Board on the appointment, the report and the company's duties.

Show the solution

Under section 148(3), the cost auditor must be a cost accountant appointed by the Board. Remuneration is determined by the members in the prescribed manner, not fixed by the Board alone.
The first proviso says a person appointed under section 139 as auditor of the company cannot be appointed for the audit of cost records. The proposal fails.
The cost auditor must comply with the cost auditing standards issued by the Institute of Cost Accountants of India.
The report is submitted to the Board of Directors (section 148(5) proviso).
Within 30 days of receiving a copy, the company must furnish it to the Central Government with full information and explanation on every reservation or qualification (section 148(6)).
The company must give the cost auditor all assistance and facilities (section 148(5)). Default makes the company and officers in default punishable as provided in section 147(1) (section 148(8)).

Answer: The Board cannot appoint its statutory auditor. It must appoint a cost accountant, with remuneration determined by the members as prescribed. The report goes to the Board, and the company sends it to the Central Government within 30 days of receiving a copy, with explanations for reservations or qualifications.

Exam tips

Write the section number with the sub-section: 148(1) for records, 148(2) for audit, 148(3) for appointment. It shows precision.
For case questions, first state the condition (class of company, prescribed goods or services), then apply it to the facts.
In 14-mark answers, add the SCA link: the auditor checks that the cost reporting framework is in line with the Companies Act and rules (SCA 103), and plans for reconciliation with financial reporting (SCA 101).
In MCQs, watch for options that say every company or that the statutory auditor may do the cost audit. Both are wrong.
Do not quote thresholds unless the question gives them or you are sure of the current rules.

Practice questions from Cost Audit

Cost Records and Maintenance Requirements 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 Maintenance Requirements: frequently asked questions

Who is required to maintain cost records?

Companies in a class that the Central Government has directed under section 148(1), engaged in prescribed goods or services. The details are in the order and the rules. Not every company is covered.

Is cost audit compulsory for every company that keeps cost records?

No. Under section 148(2), audit applies to covered companies with prescribed net worth or turnover, and only when the Government directs it. Some companies keep records without an audit.

Who appoints the cost auditor and to whom is the report given?

The Board appoints a cost accountant, and the members determine the remuneration in the prescribed manner. The report is submitted to the Board of Directors. The company then furnishes it to the Central Government within 30 days of receiving a copy.

Can cost records be kept in electronic form?

Section 120 allows records required to be kept by a company to be kept in electronic form, in the prescribed form and manner. Check the current rules for the exact requirements.