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What is Cost Audit?
Cost audit is an independent examination of a company's cost accounting records by a Cost Accountant (CMA in practice). Mandated under Section 148 of the Companies Act, 2013 read with the Companies (Cost Records and Audit) Rules, 2014.
Purpose: Verify cost allocation, cost-cutting efficiency, regulatory pricing (in regulated sectors), and prevent inflated costs hurting consumers or shareholders.
Applicability — Which companies must do cost audit?
Cost audit applies to companies in specified industries crossing thresholds:
Regulated sectors — Cost records mandatory if turnover > ₹35 cr; cost audit mandatory if turnover > ₹50 cr:
- Pharmaceuticals, telecom, electricity, petroleum, sugar, fertilizer, drugs & formulations
- Specified utilities and FMCG categories
Non-regulated sectors — Cost records mandatory if turnover > ₹35 cr; cost audit mandatory if turnover > ₹100 cr:
- Construction, base metals, paper, glass, plastic, machinery, etc. (Table B of CARO rules)
Small businesses, IT/ITeS, services (mostly) are EXEMPT.
CRA-2 — Auditor Appointment
Filed within 30 days of board meeting appointing cost auditor (or within 180 days of FY start, whichever is earlier):
- Board passes resolution appointing cost auditor (CMA)
- Cost auditor signs consent letter (CRA-3 — declaration)
- Company fills CRA-2 with: auditor's name, FCMA/ACMA membership number, firm name, period of appointment
- Attach: Consent letter (CRA-3), board resolution
- Sign with DSC, pay filing fee (₹200-600)
- Submit on MCA portal
Late filing fee: ₹300-1,200/day (multiplier based on capital).
CRA-4 — Cost Audit Report Filing
Cost Audit Report (CAR) must be filed in Form CRA-4 within 180 days from end of FY:
- Cost auditor prepares CAR after examining cost records
- Board receives CAR and adopts it
- Within 30 days of receipt, file CRA-4 with:
- Cost audit report (full text + summary)
- Company's reply on CAR observations
- Statements as per format Annexure
- Filing fee: ₹200-600
Late filing fee: ₹100/day + multiplier.
Cost auditor qualifications
- Must be a Cost Accountant in practice (FCMA or ACMA)
- Independent from company management (no employment, no related party transactions exceeding threshold)
- Cannot be statutory auditor of the same company
- Tenure: Maximum 5 consecutive financial years; 3-year cooling-off thereafter
- Removal: Company can remove cost auditor with reasons (file new CRA-2)