ATTENTION PLEASE :DATE OF SUBMISSION OF COST AUDIT REPORT & COMPLIANCE REPORT ONLY EXTENDED TO 31ST DEC 2012 AND NOT THE DATE OF APPOINTMENT OF COST AUDITOR :

DATE OF SUBMISSION OF COST AUDIT REPORT & COMPLIANCE REPORT ONLY EXTENDED TO 31ST DEC 2012 AND NOT THE DATE OF APPOINTMENT OF COST AUDITOR :

Dear Professional Collegues ,

As per General Circular No. 18/ 2012  dated 26th July 2012 , cost auditors and companies can file their cost audit reports and compliance report for the financial year 2011-12 in the XBRL mode without any penalty upto 31st December 2012.

Here the MCA extended the last date for submission of Cost Audit Report and Compliance Report for FY 2011-12 only . It is silent on last date for appointment of Cost Auditor and regarding appointment of Cost Auditor , the below given general Circular No.15/2011 dated 11th April 2011 is applicable .

Salient Features of the above mentioned General Circular No. 15/2011 dated 11th April 2011.

1.The Company is required to e-file its application with the Central Government on ww.mca.gov.in portal, in the prescribed Form 23C within ninety (90) days from the date of commencement of each financial year, along with the prescribed fee as per the Companies (Fees on Application) Rules, 1999 as amended from time to time and other decuments as per existing practice i.e. 

(i) certified copy of  the Board Resolution proposing appopintment of cost auditor; 

                                                and

(ii) copy of the certificate obtained from the cost auditor regarding compliance

of section 224(1-B) of the Companies Act, 1956  

2. After filing the online application by the Company, the same shall be deemed to be approved by the  Central Government, unless contrary is heard within thirty (30) days from the date of filing such application. 

However, if within thrity(30) days from the date of filing such application, the Central Government directs the Company to re-submit the said application with such addtional information or explanation, as may be specified in that direction, the period of thrity days for deemed approval of the Central Government will be counted from the date of re-submisson of Form 23C by the Company. 

3.After  obtaining  approval of the Central Government (deemed or otherwise), the Company  will be required to  issue  a formal letter of appointment to the cost auditor.

4.Competent Authority to appoint Cost Auditor

As per provisions of section 233B(2), the Board of Directors of a Company can appoint a cost auditor after obtaining prior approval of the Central Government. Under the revised procedure, the  first point of reference will be the  Audit Committee to ensure that the cost auditor is free from any disqualification as 

specified under section 233B (5) read with section 224 and sub-section (3) or sub-section (4) of  section 226 of the Companies Act, 1956. The Audit Committee should also ensure that the cost auditor is independent and is at arm's length relationship with the company. After ascertaining the eligibility, the Audit Committee will recommend to the Board of Directors for appointment of the  Cost Auditor.

In those companies where constitution of an Audit Committee is not required by law, the  functions of the  "Audit Committee"  as per the procedure will be discharged by the "Board of Directors".

5.The Company is required to disclose full particulars of the cost auditor along with the due date and actual date of filing of the Cost Audit Report by the cost auditor, in its Annual Report for each relevant financial year.  Since the notification has made effective from April 1, 2011, companies under cost audit are required to furnish the details in its Annual Report from the financial year 

2010-11. 

Since the cost audit report of a particular financial year may not have been submitted before publication of the Annual Report, relevant details of due and actual date of filing for the last financial year and the due date of filing for the current year may be published in the Annual Report

6. Obligation of Cost Auditor:

The Cost Auditor  is required to  inform the Central Government within thrity days of receipt of formal letter of appointment from the Company. Such intimation is required to be done in prescribed e-Form 23 D alongwith a copy of such appointment.

7.penal provisions for non-compliance of  any of the provisions of the Act regarding cost audit? Non compliance by Companies:

If a Company contravenes any provision of this circular, the company and every officer thereof who is in default, including the persons referred to in subsection (6) of Section 209 of the Act shall be punishable as provided under sub-section (2) of Section 642 read with sub-section (5) and (7) of Section 209 and sub-section (11) of Section 233B of Companies Act, 1956. 

Relevant provisions of Section 209  of the Companies Act, 1956  are as follows:

Sub- section (5) of Section 209 provides that if any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company thereunder, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:

Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeking that those requirements were complied with and was in a position to discharge that duty:

Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.

Sub- section (6) of Section 209 provides that the persons referred to in  subsection (5) are the following, namely:—

(a) where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; 

                                        and

(d) where the company has neither a managing director nor manager, every director of the company;

Sub- section (7) of Section 209 provides that  if any person, not being a person referred to in sub-section (6), having been charged by the managing director, manager or Board of directors, as the case may be, with the duty of  seeing that the requirements of this section are complied with makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which my extend to six months, or with fine which may extend to ten thousand rupees, or with both.

Relevant provision of  Section 642 of the Companies Act 1956 is as under:

Sub-section (2) of Section 642 provides that any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues.

Non compliance by Cost Auditor

If default is made by the cost auditor in complying with the aforesaid provisions, he shall be punishable with fine, which may extend to five thousand rupees.

Krishna Dasan.A

A.Krishna Dasan & Co.

Cost and Management Accountants

2 & 12(FF), DDA Commercial Complex

C-2-C Block, Pocket 2, Janak Puri,

New Delhi-110058

Mob: 98711-28831, 93111-28831

Email:aknair2002@hotmail.com

Compliance Report Certified by Cost Accountant : Last Date in XBRL Mode :31st Jan 2013

The Companies (Cost Accounting Records) Rules , 2011

Applicability : 

Every company, including a foreign company as defined under section 591 of the Act, which is engaged in the production, processing, manufacturing, or mining activities and Wherein

1. The aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees

                                                                                         OR

2.The aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees

                                                                                        OR

3. The company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India  

Provided that these rules are not applicable to the activities or products covered in any of the following Rules :

a) Cost Accounting Records ( Bulk Drugs) Rules , 2011

b) Cost Accounting Records ( Fertilisers) Rules , 2011

c) Cost Accounting Records ( Telecommunications) Rules , 2011

d) Cost Accounting Records ( Electricity Industry) Rules , 2011

e) Cost Accounting Records ( Petroleum Industry) Rules , 2011

f) Cost Accounting Records ( Formulation) Rules , 2011

g) Cost Accounting Records ( Sugar) Rules , 2011

h)Cost Accounting Records ( Industrial Alcohol ) Rules , 2011

Provided further that these rules are not applicable to a company which is a body corporate governed by any special act.

Maintanance of Cost Records :

Every company to which these rules apply , are required to maintain their cost records in accordance with Generally Accepted Cost Accounting Principles and Cost Accounting Standards issued by the Institute of Cost Accountants of India .

Every company to which these rules apply, are required to maintain their cost records , cost statements and reconciliation statement upto 8 years in respect of each financial year commencing on or after 01-04-2011.

Compliance Report:

Every Company to which these rules apply shall submit a compliance report in respect of each financial year on or after 1st day of April 2011 , duly certified by a Cost Accountant along with the Annexure to the Central Government in the Prescribed Form .

Time Limit for submission of Compliance Report :

Within 180 days from the close of the company's financial year to which the compliance report relates.

The last date for submission of compliance report in XBRL Mode for the Financial Year 2011-12  without any penalty has been extended to 31st January 2013.

Authentication and Certification of Compliance Report:

The Annexure to the compliance report is required to be approved by the Board of Directors and certified by a Cost Accountant before submitting the same to the Central Government by a company.

As per the respective Cost Accounting Records Rules, 2011 only Cost Accountant or Firm of Cost Accountants is eligible to authenticate and issue the Compliance Report. The term "cost accountant" as defined in the Rules means a cost accountants defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959) and who is either a permanent employee of the company or holds a valid certificate of practice under subsection (1) of section 6 and who is deemed to be in practice under subsection (2) of section 2 of that Act and includes a firm of cost accountants.

As clarified by the Institute of the Cost Accountants of India through Frequently Asked Questions that employee-cost accountant shall be eligible to authenticate the Compliance Report of that Company only where he is working as permanent employee and shall not be eligible to authenticate Compliance Report of any other company even under the same group.

 Mode and Period of Appointment of Cost Accountant

The Rules have not prescribed the procedure for appointment of cost accountant in practice to authenticate the Compliance Report. In case a company desires to have its Compliance Report certified by a Practicing Cost Accountant, it is advisable to appoint the cost accountant in practice by the Board of Directors since the Board has been made responsible to approve the Annexure to Compliance Report before the same is submitted to the Central Government. In case a company decides to get it certified by a permanent employee of the organisation, nominating/authorizing the employee cost accountant would be an internal matter of the company.

Maintenance of Cost Accounting Records

The Compliance Report should be prepared based on Cost Accounting Records maintained by the Company including its units and branches, in respect of each of its financial year. These cost records are required to be kept on regular basis in such manner so as to make it possible to calculate per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities carried out at individual production units or locations for every financial year on monthly/quarterly/half-yearly/annual basis.

Rule 4(3) of the respective cost accounting records rules stipulates that the cost accounting records should be maintained in accordance with the Generally Accepted Cost Accounting Principles (GACAP) and Cost Accounting Standards (CAS) issued by the Institute of Cost Accountants of India to the extent these are found relevant and applicable.

The cost records including statistical, quantitative and other records which enable the company to exercise, as far as possible, control over the various operations and costs with a view to achieve optimum economies in utilization of resources are required to be maintained. Cost records are required to be maintained on continuous basis from the basic stage of inputs to the final output. These rules also require that the records should be maintained in such a manner so that they are able to provide necessary data which is required to be furnished under these rules.

The rules also require that all such cost records and cost statements, maintained under these rules shall be reconciled with the audited financial statements for the relevant financial year specifically indicating expenses or incomes not considered in the cost records or statements so as to ensure accuracy and to reconcile the costing profit of all its products/activities with the overall profit of the company. The cost accountant is required to clearly indicate and explain any variation, if any, in his compliance report or cost audit report as the case may be.

Frequently Asked Questions

Some of the FAQ on companies (Cost Accounting Records) Rules ,2011 and the answer given by the institute of Cost Accountants of India is reproduced here for your information:

1. What is the legal authority of the Companies (Cost Accounting Records) Rules 2011?

Central Government, in exercise of the powers conferred by clause (b) of sub-section (1) of section 642 read with clause (d) of section 209 of the Companies Act, 1956 (1 of 1956), has notified Companies (Cost Accounting Records) Rules 2011.

     2.    Under which authority the Companies (Cost Audit Report) Rules are issued?

Central Government, in exercise of the powers conferred by clause (b) of sub-section (1) of section 642 read with sub-section (4) of section 233B, and sub-section (1) of section 227 of the Companies Act, 1956 (1 of 1956), and in supersession of the Cost Audit Report Rules, 2001 has issued these rules.

3. What does turnover mean under these Rules? Is gross turnover Inclusive of excise

duty?

As per Rule 2(p), “Turnover” means gross turnover made by the company from the sale or supply of all products or services during the financial year. It includes any turnover from job work or loan license operations but  does not include any non-operational income. The term “Turnover” defined in the Companies (Cost Accounting Records) Rules, 2011 shall exclude taxes & duties. It shall have the same meaning, wherever it appears, in all other orders/rules issued in connection with the cost accounting records and cost audit.

4. What constitutes the cost records under Rule 2(e)? Whether the format of

“Abridged Cost statement” prescribed in the Companies (Cost Audit Report) Rules,

2011 can be considered as a sample cost statement?

Books of account and other records relating to utilization of materials, labour and other items of cost that provides data/information to compute the cost of production, cost of sales and margin of each of the products/activities of the company on monthly/quarterly/half-yearly/annual basis are considered part of the cost records. It includes statistical, quantitative and other records which enable the company to exercise, as far as possible, control over the various operations and costs with a view to achieve optimum economies in utilization of resources. Cost records are required to be maintained on continuous basis from the basic stage of inputs to the final output.

There cannot be any exhaustive list of cost records. This would depend on the materiality of cost components in the cost of the product/activity.

The abridged cost statement can be used as a sample cost statement. This may be modified according to the need of the company.

5. What are circumstances under which a company can apply for exemption from application of the Companies (Cost Accounting Records) Rules 2011 or Companies (Cost Audit Report) Rules 2011?

There is no exemption available to a company from the provisions of Companies (Cost Accounting Records) Rules 2011 or Companies (Cost Audit Report) Rules 2011.

PENAL PROVISIONS FOR NON-COMPLIANCE:

NON-COMPLIANCE BY COMPANY

If a Company contravenes any provision of this circular, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of Section 209 of the Act shall be punishable as provided under sub-section (2) of Section642 read with sub-section (5) and (7) of Section 209 and sub-section (11) of Section 233B of Companies Act, 1956.

Relevant provisions of Section 209 of the Companies Act, 1956 are as follows:

Sub-section (5) of Section 209 provides that if any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company there under, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:

Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeking that those requirements were complied with and was in a position to discharge that duty:

Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.

Sub-section (6) of Section 209 provides that the persons referred to in sub-section (5) are the following, namely:—

(a) where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; and

(d) where the company has neither a managing director nor manager, every director of the company;

Sub-section (7) of Section 209 provides that  if any person, not being a person referred to in sub-section (6), having been charged by the managing director, manager or Board of directors, as the case may be, with the duty of seeing that the requirements of this section are complied with makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which my extend to six months, or with fine which may extend to ten thousand rupees, or with both.

Relevant provision of  Section 642 of the Companies Act 1956 is as under:

Sub-section (2) of Section 642 provides that any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues.

Non compliance by Cost Auditor:

If default ismade by the cost auditor in complying with the aforesaid provisions, he shall be punishable with fine, which may extend to five thousand rupees.

Forms Prescribed :

Form A   means the form prescribed in these rules for filing compliance report and other documents with the central government in the electronic mode.

Form B   means the form of the compliance report and includes Annexure to the compliance report

Pl feel free to contact for any clarification or comments 

Krishna Dasan.A

                 ACMA

Mob: 98711-28831

Cost Audit - Negative List

Dear Professionals

MCA ( Cost Audit Branch) has given a clarification vide General Circular No.67/2011 dated 30th Nov 2011 , that the Companies (Cost Accounting Records) Rules ,2011 are not applicable to following :

1. Wholesale or retail trading Activities

2.Banking,financial,leasing ,investment,insurance,education,health care,tourism, travel,hospitality, recreation,transport services, business/professional consultancy, IT/IT Enabled services, research & development, postal/courier services etc unless any of these have been specifically covered under any other Cost Accounting Record Rules.

3. Companies engaged in rendering jobwork operations or contracting /sub-contracting activities , and are paid only the job work or conversion charges , such as tailoring ,baking,painting,printing,constructing,servicing etc

4. Companies engaged in the production,processing ,manufacturing or mining activities till such time they commences their commercial operations.

5. Ancilliary products/activities of companies incidental to their ,main operations(ie., products/activities that do not constitute their main line of business ) and wherein the total turnover from the sale of each such ancilliary products /activities do not exceed 2% of the total turnover of the company or Rs.20 crore , whichever is lower . However , required details of all such ancilliary products/activities may be maintained under a miscellaneous group and disclosed appropriately.

For any clarification , feel free to contact us : 

Krishna Dasan.A

Mob:+91 98711 28831 

Annexure-1  :  LIST OF INDUSTRIES COVERED UNDER COST AUDIT
S.No.	Name of the Industry	Description of Activity and Relevant Chapter Heading of the Central Excise Tariff Act, 1985	Criteria	Cost Audit w.e.f.
1	Telecommunication Industry	Act, process, procedure, function, operation, technique, treatment or method employed in relation to telecasting, broadcasting, telecommunicating voice, text, picture, information, data or knowledge through any mode or medium	a)Aggregate Value of networth as on the last day of immediately preceding financial year year exceeds Rs. 5 Crores, OR b)wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; OR c) wherein the company’s equity or debt securities are listed or are in the process of listing on anystock exchange, whether in India or outside India	1st April 2011
2	Petroleum Industry	Chapter 27 of CETA 1985 or Production, processing, manufacturing or mining of crude oil, gases [including Natural Gas, Compressed Natural Gas, Liquefied Petroleum Gas and regasified gases, etc. as defined in the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006)] or Biogas or any other petroleum products		1st April 2011
3	Electricity Industry	Generation of electricity from any source of energy, and includes transformation, transmission, distribution, and/or supply of electricity by any mode, or medium		1st April 2011
4	Sugar Industry	Chapters 17 and 22 of CETA 1985 orProduction, processing, or manufacturing of any form or grade of sugar, molasses, or alcohol (including ethyl alcohol, rectified spirit, absolute alcohol, denatured alcohol, power alcohol, or solvent blends etc. but excluding potable alcohol) by using any raw materials		1st April 2011
5	Fertilizer Industry	Chapter 31 of CETA 1985 or Fertilizers as defined in clause (h) of Section 2 of the Fertilizer (Control) Order, 1985 made under Section 3 of the Essential Commodities Act, 1955 (10 of 1955)		1st April 2011
6	Pharmaceutical Industry	Chapters 29 and 30 of CETA 1985 or Production, processing, or manufacturing of bulk drugs or formulations and includes the meaning assigned to them under the Drugs (Prices Control) Order 1995		1st April 2011
7	Industrial Alcohol			1st April 2011
8	Cement	Chapter 25, 38 and 68 of CETA 1985	a)      Companies having turnover exceeding Rs 100 crores in the immediately preceding financial year OR  b)      Companies whose equity or debt securities are listed or are in the process of listing	1st April 2011
9	Insecticides	Chapter 38 (includes all classes of Insecticides as defined under clause (e) of section 3 of the Insecticides Act, 1986 (46 of 1968) and included in the schedule annexed to the said Act and as amended from time to time.		1st April 2011
10	Tyres & Tubes	Chapter 40 of CETA 1985		1st April 2011
11	Steel	Chapter 72 and 73 of CETA 1985		1st April 2011
12	Paper	Chapter 47 and 48 of CETA 1985		1st April 2011
13	Glass	Chapter 70 of CETA 1985		1st April 2011
14	Paints & Varnishes	Chapter 32 of CETA 1985		1st April 2011
15	Aluminum	Chapter 76 of CETA 1985		1st April 2011
16	Jute, Cotton, Silk, Woolen or Blended Fibers/Textiles	Chapters 50 to 63 of CETA 1985	a)    Companies having turnover exceeding Rs 100 crores in the immediately preceding financial year              OR       b)      Companies whose equity or debt securities are listed or are in the process of listing	1st April 2012
17	Edible Oil Seeds and Oils (including vanaspati)	Chapters 12 and 15 of CETA 1985		1st April 2012
18	Packaged Food Products	Chapters 2 to 25 (except Chapters 5, 6, 14, 23 and 24) of CETA 1985		1st April 2012
19	Organic & Inorganic Chemicals	Chapters 28, 29, 32, 38 and 39 of CETA 1985		1st April 2012
20	Coal & Lignite	Chapter 27 of CETA 1985		1st April 2012
21	Mining & Metallurgy of Ferrous & Non-Ferrous Metals	Chapters 26 and 74 to 83 (except Chapters 76 and 77) of CETA 1985		1st April 2012
22	Tractors & other Motor Vehicles (incl. automotive components)	Chapters 84, 85 and 87 of CETA 1985		1st April 2012
23.	Plantation Products	Chapters 8, 9, 21 and 40 of CETA 1985		1st April 2012
24	Engineering Machinery (incl.	Chapters 84 and 85 of CETA 1985 Electrical & Electronic products)		1st April 2012

By

Krishna Dasan.A

A.Krishna Dasan & Co.

Cost and Management Accountants

2 & 12(FF), DDA Commercial Complex

C-2-C Block, Pocket 2, Janak Puri,

New Delhi-110058

Mob: 98711-28831, 93111-28831