Good News for CWA’s: – New Norms for Mandatory Cost Audit

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MCA Good News for CWA’s:   New Norms for Mandatory Cost AuditIn a move that is expected to bring cheers on the faces of Cost Accountants, the Ministry of Corporate Affairs (MCA) has accepted the recommendations sent by ICWAI to discontinue the existing system of ordering Cost Audits on a company to company basis in the same Industry.

The Ministry of Corporate Affairs vide Notification no. dated 2nd May 2011 has issued Mandatory Cost Audit orders on All Companies engaged in:-

  1. Bulk Drugs
  2. Formulations
  3. Fertilizers
  4. Sugar
  5. Industrial Alcohol
  6. Electricity
  7. Petroleum
  8. Telecommunication

Companies operating in any of the above Industries and falling in the Criteria specified below shall mandatorily get their Cost Audits done if during the immediate previous financial year: -

  1. Aggregate value of Net Worth exceeds 5 Crores or
  2. Aggregate value of Turnover exceeds 20 Crores or
  3. Company’s Equity or Debt Securities are Listed or are in the process of Getting Listed whether in India or outside India

On the same lines, the Ministry issued another notification on 3rd May 2011 mandating compulsory Cost Audits for All Companies engaged in: -

  1. Cement
  2. Tyres and Tubes
  3. Steel Plant
  4. Steel Tubes and Pipes
  5. Paper or Insecticides

Companies operating in any of the above Industries are required to get their Cost Audits done only if during the immediate previous financial year: -

  1. Aggregate Value of Turnover exceeds 100 Crore
  2. Company’s Equity or Debt Securities are Listed or are in the process of Getting Listed whether in India or outside India

The companies falling under the above categories will be required to get cost audit conducted u/s 233B of the Companies Act 1956 by a cost accountant in practice or a firm of cost accountants for each of the financial year commencing from April 1, 2011.

The Ministry of Corporate Affairs has also announced New Norms for Appointment of Cost Auditor vide General Circular Number 15/2011 dated April 11, 2011.

New Norms for Appointment of Cost Auditor

cost audit Good News for CWA’s:   New Norms for Mandatory Cost Audit

The MCA, vide its General Circular number 15/2011 dated April 11, 2011, has also amended the procedure of appointment of Cost Auditor.  The New Procedure is: -

  1. The Company required to get its Cost Records Audited shall appoint a Cost Auditor who is a Cost Accountant as per the Cost and Works Accountant Act 1959 and who holds a valid Certificate of Practice (CoP)
  2. The Audit Committee of a Company as the first point of reference for appointment of cost auditor to be made by the Board of Directors.
  3. The Audit Committee shall ensure that the Cost Auditor is free from any disqualifications as specified in the Companies Act 1956.
  4. The Audit Committee shall obtain a certificate from the Cost Auditor certifying his Independence and Arms Length relation with the Company.
  5. The Company shall file its application with the Central Govt on www.mca.gov.in portal, in the prescribed form 23C within 90 days from the date of commencement of each financial year along with the prescribed fees and other prescribed Documents.
  6. On filing the application, the same shall be deemed to be approved by the Central Govt, unless contrary is heard within 30 days from the date of filing such application.
  7. After the expiry of 30 days, the Company shall issue formal letter of appointment to the Cost Auditor.
  8. Within 30 days of receipt of Formal Letter of Appointment from the Company, the Cost Auditor shall inform the Central Govt in the prescribed form, along with a copy of such appointment.

The above new norms for appointment of Cost Auditor shall be applicable from the financial year commencing on or after 1st April 2011.

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