Who is the Cost Accountant?
Cost accountant means a cost accountant as defined in clause (b) of the sub-section (1) of Section 2 of the Cost and Works Accountants Act, 1959 and who holds a valid certificate of practice under sub-Section (1) of Section 6 of the Act.
To conduct the cost audit, the person should be a member of the Institute of Cost Accountants of India, constituted under the Cost and Works Accountants Act, 1959 and shall hold a valid membership and certificate of practice.
Appointment of Cost Auditor as per Section 148 (3) of the Act
The companies to which cost audit is mandatory shall appoint a cost auditor in the following manner:
In the case of companies which are required to constitute an Audit Committee:
- The Audit Committee shall recommend the Board, whether an individual who is cost accountant or a firm of cost accountants in practice, to be appointed as the cost auditor in the company.
- The Audit Committee shall also recommend to the Board the remuneration payable to such cost auditor.
- The Board shall consider and approve the recommendation of the Audit Committee regarding appointment and remuneration of the cost auditor.
- The remuneration payable to the cost auditor shall be later ratified by the members.
In the case of companies which are not required to constitute the Audit Committee:
- The Board shall appoint an individual who is cost accountant or a firm of cost accountants in practice, as cost auditor of the company.
- The remuneration payable to the cost auditor shall be ratified by the shareholders subsequently.
Period of Appointment of Cost Auditor
As per Rule (6) of the Companies (Cost Records and Audit) Rules, 2014, the companies covered under Rule 3 and are falling within the limits as specified under Rule (4), are required to appoint cost auditor within 180 days from the commencement of every financial year.
That means the companies to whom cost audit is applicable shall appoint cost auditor every financial year.
For example: The company is in the manufacture of cement. the annual turnover during the financial year 2019-20 exceeds Rs. 100 crore and turnover from individual product exceed Rs. 35 crore.
In this case, the company shall appoint cost auditor within 180 days from the date of commencement of the financial year 2020-21. That means on or before 30th September 2020 the company shall appoint a cost auditor and from thereon, on or before 30th September every financial year.
The cost auditor shall continue in such capacity
As per Rule 6(3) of the Companies (Cost Records and Audit) Rules, 2014, every cost auditor appointed shall continue to act as cost auditor of the company either
Till the expiry of 180 days from the closure of the financial year
Till he submits the cost audit report, for the financial year for which he has been appointed.
Therefore, the appointment of cost auditor will remain in force either till he submits the cost audit report or till the expiry of 180 days from the closure of the financial year.
Mandatory Consent for appointment from Cost Auditor
As per proviso to Rule 6 of the Companies (Cost Records and Audit) Rules, 2014, before the appointment of the cost auditor, it is mandatory to obtain from him or it (if it is a firm) written consent for such appointment and a certificate as provided under Rule 6(1A).
Remuneration to Cost Auditor
The remuneration payable to cost auditor shall be approved by the Board of Directors and later ratified by the members via Ordinary Resolution in the General Meeting.
Filing requirements for the appointment of cost auditor
Rule 6(2) of the Companies (Cost Records and Audit) Rules, 2014
within a period of 30 days from the date of the Board Meeting at which the appointment was approved by the Board
Within 180 days from the commencement of the financial year, Whichever is earlier.
file e-Form CRA-2 with the Central Government along with such fees as may be applicable.
Removal of Cost Auditor
The cost auditor can be removed from his office before the expiry of his term. But before effecting removal, the Cost Auditor must be given an opportunity of being heard. The reasons for removal must be recorded in writing (minutes).
The removal is effected through a Board Resolution passed by the Board of Directors in their meeting. Post removal, the Board shall take necessary steps to appoint new cost auditor and shall file Form CRA-2 intimating the appointment of new auditor to the Central Government within 30 days from the date of such appointment. The company shall enclose the relevant Board Resolution to that effect.
Right of the Cost Auditor to Resignation
The Cost Auditor has the right to resign from the office of cost auditor anytime and noting shall prejudice his right to resign. (third-proviso to Rule 6(3) )
Casual Vacancy in the office of cost auditor
Any casual vacancy caused due to resignation or death or removal shall be filled in by the Board within a period of 30 days from the occurrence of such vacancy and appoint another cost auditor.
The company shall within a period of 30 days from the date of the Board meeting at which resolution for such appointment is passed, shall file Form CRA-4 with the Central Government.
Duty of the Cost Auditor to inform Central Government or Audit Committee or Board regarding Fraud
Section 143(12) of the Companies, Act, 2013, if the cost auditor while performing his duties as cost auditor has a reason to believe that an offence of fraud involving an amount of Rs. 1 crore or more is being or has been committed by the company, by its officers or employees, then he/it shall report the same to the Central Government.
The report initially shall be submitted to the Audit Committee or the Board, as the case may be within 2 days of knowledge of the fraud. Audit Committee or the Board has a period of 45 days to provide a reply to the report or observations.
The cost auditor shall submit the report in the form of a statement specified in Form ADT-4 and a physical copy of the report along with replies to the observations by Board of Audit Committee shall be sent to the Secretary, Ministry of Corporate Affairs via Speed Post.
In case the fraud involved is lesser than Rs. 1 crore, then the report shall be submitted to the Audit Committee or Board, as the case may be within 2 days of knowledge of the fraud and the Board shall during the year in its Board’s Report disclose the details regarding the fraud such as Nature of fraud, the amount involved, parties involved and remedial actions that were taken by the Board.
Fines and Punishments for Contraventions
As per Section 148(8) of the Companies Act, 2013, if default is committed in compliance of the provisions of Section 148, then
- The Company and every office of the company who is in default shall be punishable with in the manner as provided under sub-section (1) of Section 147;
- The cost auditor of the company who is in default shall be punishable in the manner as provided under sub-section (2) to (4) of Section 147
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