Cost auditor qualification, Disqualification, Appointment, Remuneration, Removal, Qualities, Rights, Duties, Liabilities

1. COST AUDITOR
(AS PER COMPANIES (COST RECORDS AND AUDIT) RULES 2014 )
Qualification of a Cost Auditor
Disqualification of a Cost Auditor
Appointment of a Cost Auditor
Remuneration of a Cost Auditor
Removal of a Cost Auditor
Qualities of a Cost Auditor
Rights of a Cost Auditor
Duties of a Cost Auditor
Liabilities of a Cost Auditor
By:
Dr. Ankita Chaturvedi

2. QUALIFICATION OF COST
AUDITOR
1.
• Only a Cost Accountant, as defined under section
2(28) of the Companies Act, 2013, can be
appointed as a cost auditor.
2.
• Cost Accountant means who holds a valid certificate of
practice under subsection (1) of section 6 of the Cost
and Works Accountants Act, 1959 and is in whole -time
practice. Cost Accountant includes a Firm of Cost
Accountants and a LLP of cost accountants.

3. DISQUALIFICATIONS OF COST AUDITOR
• A body corporate.
• *However, a Limited Liability partnership registered under the
Limited Liability Partnership Act, 2008 can be appointed
1.
• An officer or employee of the Company2
• A person who is a partner, or who is in the
employment, of an officer or employee of the
company.
3

4. • A person who, or his relative or partner is holding
any security of or interest in the company or any
of its subsidiary or of its holding or associate
company or a subsidiary of such holding
company.
4
• Relatives of any partner of the firm holding any
security of or interest in the company of face value
exceeding Rs. 1 lakh.
5
• A person who is indebted to the company or its
subsidiary, or its holding or associate company or
a subsidiary or such holding company, for an
amount exceeding Rs. 5 lakhs.
6

5. • A person who has given any guarantee or
provided any security in connection with the
indebtedness of any third person to the
company or its subsidiary, or its holding or
associate company or a subsidiary of such
holding company, for an amount exceeding Rs.
1 lakh
7
• A person or a firm who, whether directly or
indirectly, has business relationship with the
company or its subsidiary, or its holding or
associate company or subsidiary of such
holding company or associate company.
8

6. APPOINTMENT OF COST AUDITOR: PROCEDURE
1. The category of companies specified in rule 3 and the thresholds
limits laid down in rule 4 of Companies (Cost Records and Audit)
Rules, 2014, shall within one hundred and eighty days of the
commencement of every financial year, appoint a cost auditor.
2. The audit committee, if constituted by the company shall ensure that
the cost auditor is free from any disqualifications.
3. The audit committee shall obtain a certificate from the cost auditor
certifying his independence.

7. 4. Every company referred to in sub-rule (1) shall inform the cost auditor concerned
of his or its appointment as such and file a notice of such appointment with the
Central Government within a period of thirty days of the Board meeting in which
such appointment is made or within a period of one hundred and eighty days of
the commencement of the financial year, whichever is earlier, through
electronic mode, in form CRA-2, along with the fee as specified in Companies
(Registration Offices and Fees) Rules, 2014
5. On filing the application, the same shall be deemed to be approved by the Central
Government, unless contrary is heard within 30 days from the date of filing of such
application

8. 6. If within thirty days from the date of filing of such application,
the Central Government directs the company to re-submit the
said application with additional information the period of thirty
days for deemed approval of the Central Government shall be
counted from the date of re-submission by the company.
7. After the expiry of thirty days, the company shall issue formal
letter of appointment to the cost auditor.
8. The audit committee, if constituted by the company
recommends to the Board a suitable remuneration to be paid
to the cost auditor. In the case of those companies which are
not required to constitute an audit committee, the Board shall
consider and approve the remuneration of the Cost Auditor
which shall be ratified by shareholders subsequently.

9. .
9. Every cost auditor appointed as such shall continue in such capacity till
the expiry of one hundred and eighty days from the closure of the financial
year or till he submits the cost audit report, for the financial year for which
he has been appointed.
10. Every cost auditor, who conducts an audit of the cost records of a
company, shall submit the cost audit report along with his or its reservations
or qualifications or observations or suggestions, if any, in form CRA-3.
11. Every cost auditor shall forward his report to the Board of Directors of
the company within a period of one hundred and eighty days from the
closure of the financial year to which the report relates and the Board of
directors shall consider and examine such report particularly any
reservation or qualification contained therein

10. 12. Every company covered under these rules shall, within a period of
thirty days from the date of receipt of a copy of the cost audit report,
furnish the Central Government with such report alongwith full
information and explanation on every reservation or qualification
contained therein, in form CRA-4 along with fees specified in the
Companies (Registration Offices and Fees) Rules, 2014.
13. The company shall disclose full particulars of the cost auditor, along
with the due date and actual date of filing of the cost audit report by
the cost auditor, in its Annual Report for each relevant financial year.
14. In those companies, where constitution of Audit Committee is not
required by law, then the role of Audit Committee shall be discharged
by the Board of Directors.

11. COST AUDITOR REMUNERATION
Rule 14 of Companies (Audit and Auditors) Rules, 2014 deals with
Remuneration of the Cost Auditor. For the purpose of sub-section (3)
of section 148, –
 in the case of companies which are required to constitute an audit
committee-
 the Board shall appoint an individual, who is a cost accountant in
practice, or a firm of cost accountants in practice, as cost auditor on the
recommendations of the Audit committee, which shall also recommend
remuneration for such cost auditor;
 the remuneration recommended by the Audit Committee under (i) shall
be considered and approved by the Board of Directors and ratified
subsequently by the shareholders;
 in the case of other companies which are not required to constitute
an audit committee, the Board shall appoint an individual who is a
cost accountant in practice or a firm of cost accountants in practice
as cost auditor and the remuneration of such cost auditor shall be
ratified by shareholders subsequently.

12. • The cost auditor
appointed may be
removed from his
office before the
expiry of his term,
through a board
resolution after giving
a reasonable
opportunity of being
heard to the Cost
Auditor and
recording the
reasons for such
removal in writing.
REMOVAL
OF COST
AUDITOR

13. QUALITIES OF A COST AUDITOR
 Professionally Competent
 Able to make Independent Decisions.
 Honest
 Accounting Knowledge
 Knowledge Of Business Law
 Knowledge Of Taxation Law
 Knowledge Of management System
 Preparation Of production related Budget
 Intelligent
 Tactful
 Innovative
 Effective Communication skills
 Maintain Secrecy
 Bold And Courageous

14. RIGHTS OF A COST AUDITOR
1. Right to access, at all times, to the books of accounts and
vouchers of the company, whether kept at the head office of
the company or elsewhere.
2. Right to enquire and receive from the officers of the company
such information and explanations as he may think necessary
for the successful performance of his duties as a cost auditor
of a company.
3. Right to visit branch offices and factories of a company, and to
receive proper returns as may be necessary for the conduct of
his cost audit.
4. Right to seek and enjoy assistance and facilities from the
company so that he can successfully complete his audit.

15. 5. Right to receive remuneration from the company for his
function as a cost auditor.
6. Right to receive notice and to attend the general
meeting of the company.
7.Right to have technical and legal advice whenever
necessary in connection with his work of cost audit.
8. Right to certify the cost audit report and a right to send
his report to the Central Government as well as to the
company.
9. Right to receive such cost accounting records, cost
statements and other books and papers as would be
necessary for cost audit within 90 days of the financial
year of the company.

16. DUTIES OF A COST AUDITOR
1. He should submit his Cost Audit Report to the Central
Government within one hundred and eighty days from the
end of the company’s financial year to which such report
relates, and a copy of the said report to the company.
2. He should clearly state, in his report, that:
a. He has obtained all the information and explanations relating
to the cost accounts which to the best of his knowledge and
belief were necessary for the purposes of the cost audit.
b. Proper cost accounting records as required under the
relevant Cost Accounting (Records) Rules have been kept by
the company.

17. c. The books and records kept by the company give the
information in the manner required by the Companies
Act.
3. He should keep records of various errors or omissions
and commissions done by the client staff.
4. He should understand and appraise the company’s
policies and procedures and systems adopted for the
purpose of controlling wastages and inefficiencies.
5. He should see and ensure what other exceptional
duties are cast upon him by the Articles of the
company.
6. Lastly, he has a continuing duty to maintain his
professional knowledge and skill at a level conducive to
act as a cost auditor competently.

18. LIABILITIES OF COST AUDITOR
Nature of
Liability
Contractual
Liability
Criminal
Liability
Arising from
Negligence
Arising from
Misfeasance

19. Contractual Liability :
 The cost auditor is liable for non-fulfillment of the terms and
conditions of an agreement between him and the company
who appoints him e.g. voluntary cost audit.
 He may be held responsible under the Contract Act in failing to
perform the duties as laid down in agreement.
 In the absence of any written agreement or contract, he is
expected to conduct complete cost audit.

20. 2. Criminal Liability:
 Indian Penal Code imposes a criminal liability on the
cost auditor. The I.P.C. states that, ‘whosoever issues
or signs any certificate required by law to be given or
signed or relating to any fact which such certificate is
by law admissible in evidence, knowing or believing
that such certificate is false in any material point,
shall be punishable in the same manner as if he gives
a false evidence’.

21. The Cost Auditor’s criminal liability may be of three
categories:
(a) Falsification of books:
He shall be punishable with imprisonment for a
term which may extend to seven years, and shall
also be liable to a fine if with the intent to defraud
or deceive any person, the cost auditor:
1. Destroys, mutilates, alters, falsifies, or secrets or is
privy to the destruction, mutilation, alteration,
falsification or secreting of any books, papers or
securities; and
2. Makes or is privy to the making of any false or
fraudulent entry in any register, books of account or
document belonging to the company.

22. (b) Giving False Statement:
If in any return, report, certificate or other document, he
makes a statement:
1. Which is false in any material fact knowing it to be a
material, and
2. Which omits any material fact knowing it to be a material,
he shall be punishable with imprisonment for a term which
may extend to two years and shall also be liable to a fine.
(c) Giving False Evidence:
The auditor who intentionally gives false evidence:
1. Upon any examination, upon oath or solemn affirmation; or
2. In any affidavit, deposition or solemn affirmation in or about
the winding up of any company shall be punishable with
imprisonment for a term which may extend seven years and
shall also be liable to a fine.

23. 3. Liability to third parties:
 The cost auditor is appointed by the shareholders in an’
annual general meeting of a company and submits his
report to the Central Government and the company. He may
be held liable to the Government if default is made by him
in complying with the provisions of rule 3 or rule 4 of Cost
Audit (Report) Rules, 1996 and shall be punishable with fine
which may extend to five hundred rupees.
4. Liability to the professional body:
 The cost auditor may be held liable for his professional
misconduct if he violates the professional code of conduct
as instituted by the Cost and Works Accountants Act, 1959.
He is liable if he acts as a cost auditor without holding a
valid certificate of practice from the Institute.