Audit (Paper 12B) Key points to remember 5.

Key points to remember

Chapter 5 – Cost Audit and Secretarial Audit

Cost Audit  Companies engaged in production of the prescribed goods or

(Section 148) services must maintain the following cost records (in Form
CRA 1):
 Utilisation of material
 Utilisation of labour
 Other items of cost
 The companies which are - a) required to maintain the cost
records; and b) whose net worth is above the prescribed
limits, are required to get the cost audit done

Applicability for  Companies whose annual turnover, of the preceding year, is

preparation of INR 35 crores or more, are required to prepare the cost
cost records records
 Exemption – a) Foreign companies having only liaison office
in India and b) micro and small enterprise are exempt from
preparation of cost records, even if the turnover is more than
the prescribed limit

Appointment of  The cost auditor is appointed by the Board of Directors on

a cost auditor recommendation of the audit committee
 Cost auditor gives a consent letter to the Board, confirming
that he/she is eligible for appointment
 The company issues an appointment letter to the auditor and
the Company should inform the central government regarding
the appointment in Form CRA 2, in XBRL format.
 The cost auditor is to be appointed within earlier of the
following periods-
 180 days of the commencement of the financial year or
 30 days of the board meeting in which the auditor is
appointed
 Any casual vacancy (due to death, resignation or removal) of
the cost auditor should be filled by the Board of Directors
within 30 days of its occurrence

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Audit (Paper 12B) Key points to remember 5.2

 The cost auditor should prepare the cost audit report in Form
CRA 3 and submit it to the Board of Directors within 180
days of the end of the FY
 The Company should file such audit report with the CG in
Form CRA 4, in XBRL format), alongwith their comments
on the qualifications / reservations given in the report

Qualifications of  Cost accountant

a cost auditor  Who holds certificate of practice

Disqualifications Same as discussed in Chapter 4

of a cost auditor

Applicability of  Section 139(3) readwith Rule 6, which deals with rotation of

rotation on Cost auditors, is applicable on financial auditors only and not on
auditor the cost auditor
 The companies may still, as a healthy practice, rotate their
cost auditors voluntarily.

Authority for  Remuneration of the cost auditor should be recommended by

fixing the Audit committee and / or the Board.
remuneration  Such remuneration should be subsequently ratified by the
shareholders

Obligation to  The cost auditor should report any incident of fraud to the
report fraud Board / Audit committee promptly
 In case the amount involved in the fraud is above the
prescribed threshold, it should be reported to the Central
Government

Secretarial Every company is required to prepare its secretarial books. The

Audit (Section prescribed companies are required to get these books audited by a
204) practicing company secretary. Form MR-3 prescribes the format of
the secretarial audit report

Applicability of The following companies are required to get the Secretarial Audit
secretarial audit done:

(i) Every listed company;

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Audit (Paper 12B) Key points to remember 5.3

(ii) Every public company having a paid-up share capital of fifty

crore rupees or more; or-

(iii) Every public company having a turnover of two hundred fifty

crore rupees or more.

Appointment of  Appointed by the Board of Directors in the Board meeting

secretarial  Company issues the letter of appointment to the auditor,
auditor which is accepted by the auditor
 Any change in the Secretarial auditor should be intimated to
the members in the Board’s report

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