Companies (Cost Records and Audit) Amendment Rules 2014 Overview

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The Companies (Cost Records and Audit) Amendment Rules 2014, presented by CMA Harshad S. Deshpande, cover the applicability of cost records and cost audit for companies in regulated and non-regulated sectors. The rules specify the class of companies engaged in production or services that must maintain cost records based on their overall turnover. Additionally, the rules outline the industries classified as regulated and non-regulated, including telecommunications, electricity, petroleum products, drugs, pharmaceuticals, fertilizers, sugar, and industrial alcohol.

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- -: Presentation on : : Presentation on :- - Companies (Cost Records and Audit) Companies (Cost Records and Audit) Amendment Rules 2014 Amendment Rules 2014 By: CMA Harshad S. Deshpande, Practicing Cost Accountant M.com, ACMA, CS, CISA(USA),CIMA(UK)

1. 1. Applicability of Cost Records Applicability of Cost Records 2. 2. Applicability of Cost Audit Applicability of Cost Audit 3. Form CR 3. Form CR- -3 for Cost Audit Report 3 for Cost Audit Report 4. Annexure to Cost Audit Report 4. Annexure to Cost Audit Report

For the purposes of sub-section (1) of Section 148 of the Act, the class of companies, including foreign companies defined in clause (42) of Section 2 of the Act, engaged in the production of the goods or providing services, specified in the Table below, having an overall turnover from all its products and services of rupees thirty five crore or more during the immediately preceding financial year, shall include cost records for such products or services in their books of account, namely:- Regulated Sector Non Regulated Sector

A. Regulated Industry Sr Industry/ Sector/ Product/ Service CETA Heading (wherever applicable) 1Telecommunication services made available to users by means of any transmission or reception of signs, signals, writing, images and sounds or intelligence of any nature (other than broadcasting services) and regulated by the Telecom Regulatory Authority of India under the Telecom Regulatory Authority of India Act, 1997 (24 of 1997); 2Generation, transmission, distribution and supply of electricity regulated by the relevant regulatory body or authority under the Electricity Act, 2003 (36 of 2003), other than for captive generation(referred to in the Electricity Rules, 2005); Not applicable --------- 3Petroleum products regulated by the Petroleum and Natural Gas Regulatory Board under the Petroleum and Natural Gas Regulatory Board Act, 2006 (19 of 2006); 4Drugs and pharmaceuticals; 2709 to 2715; 2901 to 2942; 3001 to 3006. 3102 to 3105. 1701; 1703; 2207. 5Fertilisers; 6Sugar and industrial alcohol;

B. Non -Regulated Industry Sr Industry/ Sector/ Product/ Service CETA Heading (wherever applicable) 1Machinery and mechanical appliances used in defence, space and atomic energy sectors excluding any ancillary item or items; Explanation.-For the purposes of this sub-clause, any company which is engaged in any item or items supplied exclusively for use under this clause, shall be deemed to be covered under these rules. 2Turbo jets and turbo propellers; 8401 to 8402; 8801 to 8805; 8901 to 8908 8411 3Arms and ammunitions; 3601 to 3603; 9301 to 9306. 3601 to 3603 4Propellant powders; prepared explosives (other than propellant powders); safety fuses; detonating fuses; percussion or detonating caps; igniters; electric detonators; 5Radar apparatus, radio navigational aid apparatus and radio remote control apparatus; 8526

B. Non -Regulated Industry Sr Industry/ Sector/ Product/ Service CETA Heading (wherever applicable) 6 Tanks and other armoured fighting vehicles, motorised, whether or not fitted with weapons and parts of such vehicles, that are funded (investment made in the company) to the extent of ninety per cent or more by the Government or Government agencies; Port services of stevedoring, pilotage, hauling, mooring,re- mooring, hooking, measuring, loading and unloadingservices rendered by a Port in relation to a vessel or goodsregulated by the Tariff Authority for Major Ports undersection 111 of the Major Port Trusts Act, 1963(38 of1963); Aeronautical services of aircraftoperations, ground safety services, ground handling, cargofacilities and supplying fuel rendered by airports andregulated by the Airports Authorityunder the Airports Economic Regulatory Authority ofIndia Act, 2008 (27 of 2008); Steel; 8710 7 Not applicable. 8 air traffic management, Not applicable. Economic Regulatory 9 7201 to 7229; 7301 to 7326 Not applicable. 10 Roads and other infrastructure projects corresponding to para No. (1) (a) as specified in Schedule VI of the Companies Act,

B. Non -Regulated Industry Sr Industry/ Sector/ Product/ Service CETA Heading (wherever applicable) 11Rubber and allied products being regulated by the Rubber Board constituted under the Rubber Act, 1947 (XXIV of1947). 4001 to 4017 12Coffee and tea; 13Railway or tramway locomotives, rolling stock, railway or tramway fixtures and fittings, mechanical (including electro mechanical) traffic signalling equipment s of all kind; 14Cement; 0901 to 0902 8601 to 8608. 2523; 6811 to 6812 15Ores and Mineral products; 2502 to 2522; 2524 to 2526; 2528 to 2530; 2601 to 2617 2701 to 2708 7401 to 7403; 7405 to 7413; 7419;7501 to 7508; 7601 to 7614; 7801 to7802; 7804; 7806; 7901 to 7905;7907; 8003; 8007; 8101 to8113 16Mineral fuels (other than Petroleum), mineral oils etc.; 17Base metals;

B. Non -Regulated Industry Sr Industry/ Sector/ Product/ Service CETA Heading (wherever applicable) 18Inorganic chemicals, organic or inorganic compounds ofprecious metals, rare-earth metals of radioactive elementsor isotopes, and Organic Chemicals; 2801 to 2853; 2901 to 2942; 3801 to3807; 3402 to 3403; 3809 to 3824. 5303, 5310 1507 to 1518 19Jute and Jute Products; 20Edible Oil; 21Construction Industry as per para No. (5) (a) as specifiedin Schedule VI of the Companies Act, 2013 (18 of 2013) 22Health services, namely functioning as or runninghospitals, diagnostic centres, clinical centres or testlaboratories; 23Education services, other than such similar services falling under philanthropy or as part of social spend which do not form part of any business. 24Milk powder; 25Insecticides; Not applicable. Not applicable. Not applicable. 0402 3808

B. Non -Regulated Industry Sr Industry/ Sector/ Product/ Service CETA Heading (wherever applicable) 26Plastics and polymers; 3901 to 3914; 3916 to 3921; 3925 4011 to 4013 4801 to 4802. 27Tyres and tubes; 28Paper; 29Textiles; 5004 to 5007; 5106 to 5113; 5205 to5212; 5303; 5310; 5401 to 5408;5501 to 5516 7003 to 7008; 7011; 7016 8403 to 8487 8501 to 8507; 8511 to 8512; 8514 to 8515; 8517; 8525 to 8536; 8538 to 8547 9018 to 9022 30Glass; 31Other machinery; 32Electricals or electronic machinery; 33Production, import and supply or trading of medical devices,

(1) Every company specified in item (A) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or more. (2) Every company specified in item (B) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees thirty five crore or more.

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules Structure of Cost Audit Report Structure of Cost Audit Report Cost Audit Report Annexure Report Annexure 1 to 11 applicable to all companies Performance Appraisal Report Cost Audit Report Annexure Report Part A Annexure 1 to 4 Part B Annexure 1 & 2 (For Manufacturing Sector) Part C Annexure 1 & 2 (For Service Sector) Part D Annexure 1 to 6 to Cost Audit to Cost Audit

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules I/We, appointed as Cost Auditor(s) under Section 233B of the Companies Act, 1956 (1 of 1956) of .. registered office (hereinafter referred to as the company), have audited the books of account prescribed under clause (d) of sub-section (1) of section 209 of the said Act, and other relevant records in respect of the . for the year . maintained by the company and report, in addition to our observations suggestions in para 2. having been I/We, appointed as Cost Auditor(s) under Section 148(3) of the Companies Act, 2013 (18 of 2013) of .. registered office (hereinafter referred to as the company), have audited the Cost Records maintained u/s 148 of the compliance with auditing standards in respect of the . for the year . maintained by the company and report, in addition observations and suggestions in para 2. having been having at its having at its . . said Act, the in cost to our and

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (i) I/We have obtained all the information and explanations, which to the best of my/our knowledge and necessary for the purpose of this audit. No Change belief were

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (ii) In my/our opinion, proper cost records, as per the applicable Cost Accounting Rules, 2011 prescribed under clause (d) of sub-section (1) of section 209 of the Companies Act, 1956, have / have not been maintained by the company so as to give a true and fair view of the production/operation, cost of sales and margin product/activity reference. (ii) In my/our opinion, proper cost records, as per rule 5 of the Companies (Cost Records & Audit) Rules, 2014 have/have not been maintained Company in respect of the product(s) / service(s) under reference. Records by the cost of True and fairness covered in clause (vi) of the groups under

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (iii) In my/our opinion, proper returns adequate for the purpose of the Cost Audit have / have not been received from the branches not visited by me/us. No Change

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (iv) In my/our opinion and to the best of my/our information, the said books and records give / do not give the information required by the Companies Act, 1956, in the manner so required. No Change apart from the reference to the Companies Act 2013

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (v) In my/our opinion, the said books and records are in conformity with Accounting Standards issued by The Institute Accountants of India, to the extent these are found to be relevant and applicable. Deleted the Cost of Cost

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (vi) In my/our opinion, company has / does not have adequate system of internal audit of cost records which to my/our opinion is commensurate to its nature and size of its business. (v) In my/our opinion, company has / does not have adequate system of internal audit of cost records which to my/our opinion is commensurate to its nature and size of its business.

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (vi) information, statements in the annexure to this cost audit report gives / does not give a true and fair view of the cost of production of product(s) / rendering of service(s), cost of sales, margin information product(s)/service(s) reference. In my/our opinion, and other relating to under Additional clause to take care of partial clause covered in (ii)

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (vii) product statements thereto in respect of the product groups / activities reference of the company duly audited and certified by me/us are / are not kept in the company. Detailed / unit-wise activity-wise and and cost (vii) product statements thereto in respect of the product /service under reference of the company duly certified by me/us are / are not kept in the company. Detailed / unit-wise service-wise and and cost schedules schedules under audited and

CRA 3 - Form of Cost Audit Report 2011 Rules 2014 Rules (viii) As required under the provisions of The Companies (Cost Audit Report) Rules, 2011, I/we have Performance Appraisal Report, to the company, prescribed form. Deleted furnished on the

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 1 General Information statement (about company & cost auditor) Part A - Para 1 General Information statement (about company) Part A - Para 2 General Auditor Additional Details Required Name of product / service with CETA Heading Details of Cost Cost audit order date & number deleted

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 2 Cost Accounting Policy Cost Centers / objects Material cost Overheads Depreciation By-products / joint products Inventory valuation Inter unit transfers & related party Normal & abnormal costs IFRS Other relevant cost accounting policy Part A - Para 3 Cost Accounting Policy Following clause in earlier CARR is deleted: in case the company has adopted IFRS, variations in treatment of Cost Accounting arising out of the adoption of IFRS in Financial Accounting

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 3 Product Group Details Part A Para 4 Product / Service Group Details (For the company as a whole) Additional Details Required Extra ordinary income if any, Turnover as per Excise / Service tax records, Explain the difference if any between turnover as per Annual Accounts & Turnover as per Excise/ Service tax Records.

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 4 Quantitative information (For each Product Group separately) Part B & C Para 1 Quantitative information (For each CETA Heading separately) Details as per CETA Heading / Service Code Product Group. instead of

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 5 Abridge Cost statement (For each Product Group separately) Part B & C - Para 2 Abridge Cost statement (For each product Heading / Service separately) Additional Details Required - Cost of finished purchased Cost of sale before interest expenses. with CETA Code goods

Annexure to Cost Audit Report 2011 Rules 2014 Rules .. continued Para 5 Notes - .. continued Part B & C - Para 2 Notes - Separate Cost Statement shall be prepared for each CETA heading / representing (instead of product group). In case the different unit of measure separate cost should be different unit of measures. Service the Code product product has statement provided for Note 3: Proforma modified to meet the requirement of industry Deleted may be suitably

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 5 - a Details of material consumed (For each product separately) Part B & C - Para -2A Details of material consumed (For each CETA Heading / Service separately) group Para 5 b Details of utilities ( For each product group separately) Part B & C - Para -2B Details of utilities ( For each CETA Heading / Service separately) Para 5 c Details of industry specific expenses (For each product group separately) Part B & C - Para -2C Details of industry specific expenses (For each CETA Heading / Service separately)

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 6 Operating Ratio (For each product group separately) Para 6 is deleted Para 7 Profit Reconciliation (For the company as a whole) Part D Para 2 Profit Reconciliation (For the company as a whole) Note Show abnormal Expenses on lockouts, & any other items of expenses or abnormal considered in cost. wastages, strikes / incomes nature of not

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 8 Value Addition & Distribution of earnings (For the company as a whole) Part D Para 3 Value Addition & Distribution of earnings (For the company as a whole) Additional Details Required Extra ordinary income Extra ordinary expenditure

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 9 Financial Analysis (For the company as a whole) Part -D Para 4 Financial Analysis (For the company as a whole) B. Financial Performance Deleted: Cost of Production and Cost of Sales E. Working Capital Ratios Deleted: Net working Capital to Cost of Sales WIP to Cost of Production Definition of Net Worth linked to Companies Act Position & Ratio Position & Ratio

Annexure to Cost Audit Report 2011 Rules 2014 Rules Para 10 Related Party Transactions Part D Para 5 Related Party Transactions XBRL requirement not provided CIN/PAN of related party. Country of related party. Product or activity eight digit code. Part D Para Reconciliation Of Indirect Taxes Additional Details Required Amount of duty free clearance Para 11 Reconciliation Of Indirect Taxes

Annexure to Cost Audit Report 2011 Rules 2014 Rules New Insertion Part D Para 1 Product & service profitability statement ( Products/ Services) For Audited

Variation in Part B Manufacturing Sector & Part C - Service Sector Services Covered under Cost Records / Cost Audit Telecommunication Services other than broadcasting Electricity Generation, transmission, distribution and supply Port Services Aeronautical services Roads & other infrastructure projects Construction Industry Health services hospitals, diagnostics, clinical centers etc. Educational Services excluding Philanthropy

Variation in Part B Manufacturing Sector & Part C - Service Sector Part B - Manufacturing Part C - Service Para 1 Quantitative Information Name of Product CETA Heading 1. Available Capacity a. Installed Capacity b. Capacity enhanced during year c. Capacity available leasing d. Capacity available loan licensing e. Total Available Capacity Para 1 Quantitative Information Name of Service Service Code 1. Available Capacity a. Installed Capacity b. Capacity enhanced during year NA thru thru NA c. Total Available Capacity

Variation in Part B Manufacturing Sector & Part C - Service Sector Part B - Manufacturing Part C - Service .. continued Quantitative Information 2. Actual Production a. Self Manufactured b. Produced under leasing arrangements c. Produced on Loan License d. Total Production .. continued Quantitative Information 2. Actual Services Provided a. Own Services b. Services under Contractual Arrangements c. Outsourced Services d. Total Services 3. Production as per Excise 3. Services provided as per Service Tax records 4. Capacity Utilisation 4. Capacity Utilisation

Variation in Part B Manufacturing Sector & Part C - Service Sector Part B - Manufacturing Part C - Service .. continued Quantitative Information 5. Finished Goods Purchased a. Domestic Purchase b. Imports of FG c. Total FG Purchased .. continued Quantitative Information NA 6. Stock and other adjustments a. Change in Stock of FG b. Self or Consumption c. Other Adjustments d. Total Adjustments NA Captive Quantitative

Variation in Part B Manufacturing Sector & Part C - Service Sector Part B - Manufacturing Part C - Service .. continued Quantitative Information 7. Total Available Qty for Sale 2(d) + 5(c) + 6(d) .. continued Quantitative Information NA 8. Actual Sales a. Domestic Sales of Product b. Domestic Sales of traded Product c. Export sale of Product d. Export sale Product e. Total Quantity Sold 5. Actual Sales a. Services Rendered Dom. NA b. Services Rendered Expo. NA of traded c. Total Services Rendered

Variation in Part B Manufacturing Sector & Part C - Service Sector Part B - Manufacturing Part C - Service Para 2 Abridged Cost Statement Quantitative Information Production FG Purchased FG Adjustment Captive Consumption Other Adjustments Quantity Sold Para 2 Abridged Cost Statement Quantitative Information Services Provided NA NA Captive Consumption Other Adjustments Services Rendered

Variation in Part B Manufacturing Sector & Part C - Service Sector Part B - Manufacturing Part C - Service .. continued Para 2 Abridged Cost Statement Major variations in Cost sheet Process Material / Chemical Increase Decrease in WIP Primary Packing Cost Cost of FG Purchased .. continued Para 2 Abridged Cost Statement Major variations in Cost sheet NA NA NA Cost of Contractual Services NA Outsourced / Increase Decrease in FG Stock Secondary Packing Cost NA