Master Circular No. 2/2011
Government of India
Ministry of Corporate Affairs
Cost Audit Branch
B-1, Wing, 2nd Floor,
CGO Complex, Lodhi Road,
New Delhi- 110 003
Dated: the November 11, 2017
Institute of Cost and Works Accountants of India,
12, Sudder Street
Kolkato -700 016
Subject: Master Circular on Cost Accounting Records and Cost Audit
Ministry has from time-to time issued number of circulars with regard to various matters concerning cost accounting records and cost audit in the corporate sector. All these circulars have been reviewed. In supersession of the earlier circulars as mentioned in Appendix, a Master Circular is issued as under:
(a) As per provisions of the Cost Audit Report Rules that are in force from time-to-time, a cost auditor is required to comment on the scope and performance of internal audit of cost records. Hence it would tend to mitigate against the proper and dispassionate discharge of his duties if he was also the internal auditor of the company for the same period for which he is conducting the cost audit. In view of this, the cost auditor cannot also be the internal auditor of a company for the period for which he is conducting the cost audit, irrespective of the fact whether he is conducting cost audit for one or all of the company’s products/activities_
(b) The specified number of companies for the purpose of section 233B(2) read with section 224(1B) of the Companies Act, 1956 is to be computed for a given financial year with reference to the number of companies wherein he has been appointed as the cost auditor, including those wherein he is proposed to be appointed for which he has given his consent. The number of companies in respect of which cost audit reports have not been submitted and have become overdue shall also be taken into account for the purposes of ceiling under section 224 (1B).
(c) A cost auditor shall be deemed to have concluded his appointment for the relevant financial year as soon as he renders a report to the Central Government in accordance with the Cost Audit Report Rules. as applicable, with a copy to the Company. His obligation to answer queries from the Ministry of Corporate Affairs arising out of review of cost audit reports should not debar him from accepting another appointment as cost auditor of a company provided, the specified number of companies contemplated in section 224(1B) is not exceeded.
(d) The duties of the cost accountants appointed to conduct an audit of cost accounts of the company flow directly from the provisions contained under section 233B of the Companies Act, 1956. As such they should, in strict compliance therewith and in compliance with the Cost Audit Report Rules in force, ensure that full and complete details of cost accounts are furnished in their cost audit reports.
(e) In case where a firm of cost accountants is approved for appointment as cost auditors under Section 233B (2) of the Act, the cost audit report shall be signed by anyone of the partners of the firm responsible for the conduct of cost audit in his own hand alongwith his membership number, for and on behalf of the firm. In any case the report should not be signed by merely affixing the firms’ name.
(f) Cost audit report for a financial year contains corresponding data for the previous year(s) also. If a company is covered under cost audit for the first time, then the cost auditor shall mention the figures for the previous year(s), certifying by means of a note that the figures so stated are on the basis of information furnished by the management, for which he has obtained a certificate from them.
(g) Sub-section (6) of section 292A of the Companies Act, 1956 states that the Audit Committee should have discussions with the auditors periodically about internal control systems, the scope of audit including the observations of the auditors and review the half yearly and annual financial statements before submission to the Board and also ensure compliance on internal control systems. It has been already clarified in Departmental Circular No. 6/2001 dated 20.08.2001 that the term “auditors” includes cost auditor and hence “scope of cost audit including observations of the auditors” occurring in the above sub-section includes the scope of cost audit including observations of the cost auditors as well. Therefore, the Audit Committee in its duty to ensure compliance of internal control system shall also discuss the suggestions made in the cost audit report for implementation, wherever cost audit has been directed under section 233B of the Companies Act, 1956. The presence of the cost auditor in such committees will ensure overall cost management efficiency in resource utilization, business vertical-wise performance evaluation, proper pricing of inter-unit/inter-company transfers and valuation of inventories. However, the cost auditor wherever appointed shall attend and participate at the meetings of the Audit Committee or the Board, as the case may be, but shall neither be a member nor have the right to vote.
2. The Institute is requested to bring this to the general information of all Members in practice, and of the corporate sector.
1. E-Governance Cell, Ministry of Corporate Affairs, Shastri Bhawan New Delhi with a request to upload this master circular on the MCA’s website.
2. All Regional Directors/Registrars of Companies
3. PS to CAM to MOS
4. PS to Secretary/Addl. Secretary
5. PS to Joint Secretary (A)/Joint Secretary (R)/Joint Secretary (M)
6. PS to Dll (DR)/Dll (Policy)
7. PS to Economic Adviser