The Companies (Cost Accounting Records) Rules , 2011
1. The aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees
2.The aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees
3. The company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India
Provided that these rules are not applicable to the activities or products covered in any of the following Rules :
a) Cost Accounting Records ( Bulk Drugs) Rules , 2011
b) Cost Accounting Records ( Fertilisers) Rules , 2011
c) Cost Accounting Records ( Telecommunications) Rules , 2011
d) Cost Accounting Records ( Electricity Industry) Rules , 2011
e) Cost Accounting Records ( Petroleum Industry) Rules , 2011
f) Cost Accounting Records ( Formulation) Rules , 2011
g) Cost Accounting Records ( Sugar) Rules , 2011
h)Cost Accounting Records ( Industrial Alcohol ) Rules , 2011
Provided further that these rules are not applicable to a company which is a body corporate governed by any special act.
Maintanance of Cost Records :
Every company to which these rules apply , are required to maintain their cost records in accordance with Generally Accepted Cost Accounting Principles and Cost Accounting Standards issued by the Institute of Cost Accountants of India .
Every company to which these rules apply, are required to maintain their cost records , cost statements and reconciliation statement upto 8 years in respect of each financial year commencing on or after 01-04-2011.
Every Company to which these rules apply shall submit a compliance report in respect of each financial year on or after 1st day of April 2011 , duly certified by a Cost Accountant along with the Annexure to the Central Government in the Prescribed Form .
Time Limit for submission of Compliance Report :
Within 180 days from the close of the company's financial year to which the compliance report relates.
The last date for submission of compliance report in XBRL Mode for the Financial Year 2011-12 without any penalty has been extended to 31st January 2013.
Authentication and Certification of Compliance Report:
The Annexure to the compliance report is required to be approved by the Board of Directors and certified by a Cost Accountant before submitting the same to the Central Government by a company.
As per the respective Cost Accounting Records Rules, 2011 only Cost Accountant or Firm of Cost Accountants is eligible to authenticate and issue the Compliance Report. The term "cost accountant" as defined in the Rules means a cost accountants defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountants Act, 1959 (23 of 1959) and who is either a permanent employee of the company or holds a valid certificate of practice under subsection (1) of section 6 and who is deemed to be in practice under subsection (2) of section 2 of that Act and includes a firm of cost accountants.
As clarified by the Institute of the Cost Accountants of India through Frequently Asked Questions that employee-cost accountant shall be eligible to authenticate the Compliance Report of that Company only where he is working as permanent employee and shall not be eligible to authenticate Compliance Report of any other company even under the same group.
Mode and Period of Appointment of Cost Accountant
The Rules have not prescribed the procedure for appointment of cost accountant in practice to authenticate the Compliance Report. In case a company desires to have its Compliance Report certified by a Practicing Cost Accountant, it is advisable to appoint the cost accountant in practice by the Board of Directors since the Board has been made responsible to approve the Annexure to Compliance Report before the same is submitted to the Central Government. In case a company decides to get it certified by a permanent employee of the organisation, nominating/authorizing the employee cost accountant would be an internal matter of the company.
Maintenance of Cost Accounting Records
The Compliance Report should be prepared based on Cost Accounting Records maintained by the Company including its units and branches, in respect of each of its financial year. These cost records are required to be kept on regular basis in such manner so as to make it possible to calculate per unit cost of production or cost of operations, cost of sales and margin for each of its products and activities carried out at individual production units or locations for every financial year on monthly/quarterly/half-yearly/annual basis.
Rule 4(3) of the respective cost accounting records rules stipulates that the cost accounting records should be maintained in accordance with the Generally Accepted Cost Accounting Principles (GACAP) and Cost Accounting Standards (CAS) issued by the Institute of Cost Accountants of India to the extent these are found relevant and applicable.
The cost records including statistical, quantitative and other records which enable the company to exercise, as far as possible, control over the various operations and costs with a view to achieve optimum economies in utilization of resources are required to be maintained. Cost records are required to be maintained on continuous basis from the basic stage of inputs to the final output. These rules also require that the records should be maintained in such a manner so that they are able to provide necessary data which is required to be furnished under these rules.
The rules also require that all such cost records and cost statements, maintained under these rules shall be reconciled with the audited financial statements for the relevant financial year specifically indicating expenses or incomes not considered in the cost records or statements so as to ensure accuracy and to reconcile the costing profit of all its products/activities with the overall profit of the company. The cost accountant is required to clearly indicate and explain any variation, if any, in his compliance report or cost audit report as the case may be.
Frequently Asked Questions
Some of the FAQ on companies (Cost Accounting Records) Rules ,2011 and the answer given by the institute of Cost Accountants of India is reproduced here for your information:
1. What is the legal authority of the Companies (Cost Accounting Records) Rules 2011?
Central Government, in exercise of the powers conferred by clause (b) of sub-section (1) of section 642 read with clause (d) of section 209 of the Companies Act, 1956 (1 of 1956), has notified Companies (Cost Accounting Records) Rules 2011.
2. Under which authority the Companies (Cost Audit Report) Rules are issued?
Central Government, in exercise of the powers conferred by clause (b) of sub-section (1) of section 642 read with sub-section (4) of section 233B, and sub-section (1) of section 227 of the Companies Act, 1956 (1 of 1956), and in supersession of the Cost Audit Report Rules, 2001 has issued these rules.
3. What does turnover mean under these Rules? Is gross turnover Inclusive of excise
As per Rule 2(p), “Turnover” means gross turnover made by the company from the sale or supply of all products or services during the financial year. It includes any turnover from job work or loan license operations but does not include any non-operational income. The term “Turnover” defined in the Companies (Cost Accounting Records) Rules, 2011 shall exclude taxes & duties. It shall have the same meaning, wherever it appears, in all other orders/rules issued in connection with the cost accounting records and cost audit.
4. What constitutes the cost records under Rule 2(e)? Whether the format of
“Abridged Cost statement” prescribed in the Companies (Cost Audit Report) Rules,
2011 can be considered as a sample cost statement?
Books of account and other records relating to utilization of materials, labour and other items of cost that provides data/information to compute the cost of production, cost of sales and margin of each of the products/activities of the company on monthly/quarterly/half-yearly/annual basis are considered part of the cost records. It includes statistical, quantitative and other records which enable the company to exercise, as far as possible, control over the various operations and costs with a view to achieve optimum economies in utilization of resources. Cost records are required to be maintained on continuous basis from the basic stage of inputs to the final output.
There cannot be any exhaustive list of cost records. This would depend on the materiality of cost components in the cost of the product/activity.
The abridged cost statement can be used as a sample cost statement. This may be modified according to the need of the company.
5. What are circumstances under which a company can apply for exemption from application of the Companies (Cost Accounting Records) Rules 2011 or Companies (Cost Audit Report) Rules 2011?
There is no exemption available to a company from the provisions of Companies (Cost Accounting Records) Rules 2011 or Companies (Cost Audit Report) Rules 2011.
PENAL PROVISIONS FOR NON-COMPLIANCE:
NON-COMPLIANCE BY COMPANY
If a Company contravenes any provision of this circular, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of Section 209 of the Act shall be punishable as provided under sub-section (2) of Section642 read with sub-section (5) and (7) of Section 209 and sub-section (11) of Section 233B of Companies Act, 1956.
Relevant provisions of Section 209 of the Companies Act, 1956 are as follows:
Sub-section (5) of Section 209 provides that if any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company there under, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to ten thousand rupees, or with both:
Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that a competent and reliable person was charged with the duty of seeking that those requirements were complied with and was in a position to discharge that duty:
Provided further that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.
Sub-section (6) of Section 209 provides that the persons referred to in sub-section (5) are the following, namely:—
(a) where the company has a managing director or manager, such managing director or manager and all officers and other employees of the company; and
(d) where the company has neither a managing director nor manager, every director of the company;
Sub-section (7) of Section 209 provides that if any person, not being a person referred to in sub-section (6), having been charged by the managing director, manager or Board of directors, as the case may be, with the duty of seeing that the requirements of this section are complied with makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which my extend to six months, or with fine which may extend to ten thousand rupees, or with both.
Relevant provision of Section 642 of the Companies Act 1956 is as under:
Sub-section (2) of Section 642 provides that any rule made under sub-section (1) may provide that a contravention thereof shall be punishable with fine which may extend to five thousand rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first during which such contravention continues.
Non compliance by Cost Auditor:
If default ismade by the cost auditor in complying with the aforesaid provisions, he shall be punishable with fine, which may extend to five thousand rupees.
Forms Prescribed :
Form A means the form prescribed in these rules for filing compliance report and other documents with the central government in the electronic mode.
Form B means the form of the compliance report and includes Annexure to the compliance report
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