Cost audit requirements become stricter

New Delhi: Companies will now have to ensure that all statements annexed with the cost audit report are first approved by their board of directors before final submission.

Corporate Affairs Ministry, which is implementing the Companies Act, has amended the rules pertaining to cost records and audit in this regard.

Cost audit is mandatory for various classes of companies, including those in the areas of healthcare, construction and education.

As per the rules, cost auditor has to submit the cost audit report to the company's board of directors within 180 days from the close of a particular financial year.

Within 30 days of receiving the report, the company concerned has to submit the same to the ministry along with explanations about any "reservation or qualification" flagged by the cost auditor.

Now, the ministry has made it mandatory that any statement to be annexed with the cost audit report should be first approved by the company's board before being finalised.

"The cost statements, including other statements to be annexed to the cost audit report, shall be approved by the board of directors before they are signed on behalf of the board by any of the director authorised by the board, for submission to the cost auditor to report thereon," as per the revised rules.

According to the ministry, a cost auditor can be removed before the term ends provided there is a board resolution. The entity or person concerned should be given reasonable opportunity to be heard besides recording the "reasons for such removal in writing".

Cost audit rules are applicable broadly on four classes of firms including those engaged in an industry regulated by a sectoral regulator or a central government ministry.

It would be in place for companies engaged in the production of goods in strategic sectors such as machinery and mechanical appliances used in defence.

Further, companies operating in areas involving public interest such as railways and firms that are into production, import and supply or trading of certain medical devices come under the cost audit rules.

Among the four categories, there are various thresholds for determining the requirement for maintaining cost records.