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Master Circular on Cost Accounting Records and Cost Audit
November, 21st 2014

                                                                      Master Circular No. 2/20] 1

                                            521 14/CAB-20 1 1
                             I *         Government of India
                                      Ministry of Corporate Affairs
                        .          .-      Cdst Audlf Branch
                        ,)    ;'                 Ir****
                         b,<       .

                         i                                                  '0-1 ' Wing, 2d Flodr,
                                                                      Paryavaran Bhawan,
                                                                 CGO Complex, lodhi Road,
                                                                                                     I ,
                                                                       New Delhi - 1 10 003

                                                               Dated the November 11,201 1 '           .
       The President,
       Institute of Cost cqd Works Accountants of India,
       12, Sudder Streei
       Kolkata - 700 016'.

       SubJecf:Master ocular on Cost Accountlna Records and Cod Audit
       Ministry has fromi time-to-time issued number of circulars with regard to
various matters concttrning cost accounting records and cost audit in fhe
corporate sector, All these circulars have been reviewed. In supersession of the
earlier circulars as mentioned in Appendix, a Master Clrcular is issued as under:
(a) As per provisions of the Cost Audit Report Rules that are in force from time-to-
    time, a cost audifor is required to comment on the scope and performance
    of infernal audit of cost records, Hence if would tend to mitigate against the
    proper and dispas~ionafe       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 13f this, the cost auditor cannot also be t h e internal auditor
    of a company fo: ,he period for which he is conducting t h e cost audit,
    irrespective of the fact whether he is conducting cost audit for one o       r all of
    the company's prc~:!:zts/activities.
   S) The specified number of companies for the purpose of section 2330 (21 read
      with recfion 224 ( of the Companies Act. 1956 is to be computed f0r.a
      given financial year with reference to the number of companies wherein h e
      has been appoiniod 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 ( 1 0).

(c) A cosf auditor shall be deemed fo hove concluded his appointment for the
    relevant financial year as soon a      s he renders a report to the Central
    Government in acmrdance wifh the Cosf Audit Report Rules, us applicable,
    with a copy to the Company. His obligation fo answer queries from the
                             a ~ e arising ouf of review of cost audit reports should
    Ministry of ~ o r ~ o r Affairs
    not debar him from accepfing another appointmenf us cost audifor of o
    company provide

(g) Sub-secfion (6)of section 292A of the Companies Act. 1956 states that the
    Audit Committee should have discussions with the auditors periodically about
    internal control sys-tems, 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 cantrol
    systems. It has been already clarified in Deparfrnental Circular No. 6/2001
    dated M  .08.200 1 '%!pt the term "auditors" includm cosf auditor and hence
    "scope of audit inchding observations of the audifon"occurring I  n the above
    sub-section includ$s the scope of cost audt including observations of the
    cost auditors as 'ell. Therefore, the Audit Committee in its duty to ensure
                     Y   'i
    compliance of internal control system shall aSo discuss the suggestions made
    in the cost audit bport for implementation, wherever cost audit has been .
    directed under sedtion 2338 of the Companies Act, 1956. The presence '    ofthe
   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 a1 .,bemeetings of the Audit Committee or the Board, as the
   case may be,but s5all neither be a member nor have the right to vote.
2.  The Institute is riqvesfed to bring this to the general information of all
Members in praclice, clnd of the corporafe secfor.


                                                                     Yours faithfully,

                                                                        (B.B. o al)
                                                                      Adviser (Cost)

Copy to:              ...     4                                   9"
   1. -Governance !$=II, Minishy of Corporate Affairs, Shostri Bhovan. New Delhi
      with a request t c ~ ~ p l o a d masler circular on the MCA's website.
                            / Registrars of Companies
   2. All Regional ~ird;cfofs
   3. PS to CAM I to!~OS
   4. PS to Secretary X ~ d dSecretarj
                                 ~ .
   5. PS to Joint Secretary (A) / Joint Secretary [R)/ Joint Secretary (MI
   6. PS to 01 (OR) / DII (Policy)
   7. PS to Economic Adviser
                                                 a                                        A~~endix
                            List of old Circblars on Cost Accountina Records and Cost Audit
        Sno. Circular No.              Date-
                                       -*-    ~f Issue    Su biect
         1.    52/320/80-CAB           Janu..~ry  20,     Following of the format for submission of      ,

                                       1982               Cost Audit Report.
         2.    52/826/81 -CAB          ~ebrli ary 1 5 ,   Additional information to be furnished
                                       1 982'             along with the Cost Audit Reports.
         3.    1/1/1982-C.t.V/         Jannt~ty20,        Appointrnenf of Cosf Auditor as an Internal
               23/44 / 19 79-C.
                              L .-Il   1 983              Auditor of a Company.
         4.    1/1/83/-C.L.V/          March 18. 1983     Disclosure of full details in Cost Audit Report.   *.
               52/3 1 8180-CAB
         5.    54/409/8@CAB            November 19,        Appointment of Cost Auditor in Firm's Name
         6. 52/409/80-CAB              Aug~st    24, 1 984 Authentication of Cost Audit Reporf in
                                                           cases where a firm of Cost ~uditors    is
                                                           approved under U/s 2330 (21 of the
                                                           Companies Act, 1956 for.conducting Cost
                                             I       .
                                       Aug..f.;i 30, 1988 Clarification relating to sub-section ( 1 0 ) of
                                            1              Section 224 and sub-section (2)of Section
                                                           2338 of the Companies Act, 1956 regarding
                                                           the appointment of Cost Auditor
                                       January 9, 1990 Authentication of previous year figures in
                                                           the Cost Audit Report
                                       Marzh 2.1990        Clarification under Section 224 ( 1 ) of the
                                                           Companies Act, 1956.
                                       March 5, 1 990      Clarification under section 224 (1 0) of the
                                                           Corn panies Act, 1956 read with section 233                I

                                                           of the Act.
        1 1.   $21 1 1 /93-CAB         Junc3 7, 1993       Maintenance of books of cost accounts as
                                                           per Cost Accounting Records Rules.
        12.    52/ 1 1/93-CAB          Jun!; 8,1993        Revised Cost Audit Order on annual basis
                                                           issued to the existing companies,
         3.    5/21/ZOO1 -C.L.V /      Mar.& 18, 2002 Cost Audit Report to be discussed in the
         ,     52/03/CAB-2002              - .,            Audit Committee to be constituted under
                                                           section 292A of the Companies Act, 1956.
         4.    52/22/CAB-2000          ~o!srnber26, Submission of f he soft copy of the Cost
                                       2002                Audit Reports under section 2338 of the
                                                           Companies Act, 1956
        1 5.   5/21/2001 -C.L.V /      January 9,2003 Participation of Cost Auditor in the
               52/323/CAB-87                               meetings of Audit Committee to be
                                                           constituted under Section 292A of the
.   -
                                                           Companies Act, 1956 - clarification reg.
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