Section 148 of the Companies Act, 2013 (CA 2013) provides for Central Government to specify audit of items of cost in respect of certain companies. This section corresponds to section 233B of the Companies Act, 1956 i.e. Audit of cost accounts in certain cases. Section 148 of CA 2013 has come into force on 1st April, 2014 vide Notification No. S.O. 902(E) issued dated 27/03/2014.
The Central Government issued the Companies (Audit and Auditors) Rules, 2014 on March 31, 2013 and the Companies (Cost Records and Audit) Rules, 2014 on June 30, 2014 governing maintenance of cost accounting records and cost audit as per Section 148 of the Companies Act, 2013.
Cost Records to be included in Books of Account of Companies
In accordance with the provisions of section 148(1) of the CA 2013, the Central Government (CG) may direct that particulars relating to the utilisation of material or labour or to other prescribed items of cost shall also be included in the books of account kept under section 128 by class of companies.
CG shall make such directions by an order in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed. Note that such order shall be issued by the CG notwithstanding anything contained in Chapter-X (Sections 139-148) of the CA 2013.
However, the Central Government shall, before issuing such order in respect of any class of companies regulated under a special Act, consult the regulatory body constituted or established under such special Act. For Example:
- The Rubber Act, 1947
- The Electricity Act, 2003
- The Major Port Trusts Act, 1963
- The Telecom Regulatory Authority of India Act, 1997
- The Petroleum and Natural Gas Regulatory Board Act, 2006
- The Airports Economic Regulatory Authority of India Act, 2008
Further, you may refer sub-clause (iv) of clause (13) of section 2 of CA 2013 defining Books of Account which includes records maintained in respect of the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section.
Class of Companies required to Maintain Cost Records
Rule 3 of the Companies (cost records and audit) Rules, 2014 has specified class of companies in tabular form for the purposes of Section 148(1) of the CA 2013. The Table have classified Industry/ Sector/ Product/ Service in two sectors viz. (A) Regulated Sectors and (B) Non-regulated Sectors.
Accordingly, every company including foreign companies:
i) Engaged in the production of the goods or providing services;
ii) Covered under item (A) or (B) of Table of Rule 3;
iii) Having an overall turnover from all its products and services of ₹35 crore or more during the immediately preceding financial year;
shall include cost records for such products or services in their books of account.
Foreign companies have been defined in clause (42) of Section 2 of the CA 2013 as any company or body corporate incorporated outside India which:
(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and
(b) conducts any business activity in India in any other manner.
Thus, companies registered under Section 8 of the CA 2013 and One Person Company (OPC) newly introduced in the Companies Act, 2013 may also be required to maintain cost records if falls under the above criteria.
However, foreign companies having only liaison office in India and engaged in production, import and supply or trading of medical devices listed in Sl. 33 of Table (B) are exempted to include cost records for such products in their books of account.
Further, a company which is classified as a micro enterprise or a small enterprise including as per the turnover criteria under section 7(9) of the Micro, Small and Medium Enterprises Development Act, 2006 is also excluded from the application of cost records in Books of Account.