Companies Act Section 148

Companies Act Section 148- Central Government’s Power to Specify Audit of Cost Records for Certain Classes of Companies

Section 148 of the Companies Act provides the Central Government with the power to require certain categories of companies to maintain and audit cost records in relation to the production of specific goods or the provision of particular services. This section is designed to ensure that companies maintain detailed records related to cost structures, such as the utilisation of materials, labour, and other cost components.

The goal is to improve cost transparency, particularly in sectors where pricing and cost structures have broader implications for consumers, industry practices, or regulatory oversight.

Sub-section (1): Power to Mandate Cost Records

Notwithstanding anything contained in the general provisions of this chapter, the Central Government has the power to issue an order directing certain companies to maintain specific cost records.

This power applies to companies that belong to a prescribed class, which are engaged in the manufacture or production of specified goods or providing certain types of services.

The Central Government’s order may require such companies to include particular cost details within their books of account, such as:

Material usage records.

Labour utilisation records.

Records of other relevant cost components, as specified in the prescribed rules.

Consultation Requirement for Regulated Companies

Before issuing such an order to companies that are regulated under a special Act (such as companies in sectors governed by a specific regulatory authority), the Central Government must consult the relevant regulatory body established under the applicable special Act.

This ensures that cost audit requirements do not conflict with sector-specific regulations already imposed by specialised regulators.

Sub-section (2): Power to Order Cost Audits

If the Central Government believes it is necessary, it may further direct certain companies (covered under sub-section 1) to have their cost records audited.

This cost audit requirement may apply only to companies meeting prescribed financial thresholds, such as:

Having a net worth that meets or exceeds a prescribed amount.

Achieving annual turnover of a prescribed amount.

In such cases, the cost audit will need to be conducted in the manner specified by the Central Government in its order.

Sub-section (3): Appointment of Cost Auditor and Standards Compliance

The cost audit required under sub-section (2) must be conducted by a Cost Accountant, who shall be appointed by the Board of Directors.

The remuneration for the cost auditor shall be determined by the members of the company at a general meeting, in accordance with prescribed rules.

The Statutory Auditor appointed under Section 139 (financial audit) cannot also be appointed as the Cost Auditor.

Compliance with Cost Auditing Standards

The cost auditor must perform the cost audit in compliance with cost auditing standards issued by the Institute of Cost Accountants of India, as recognised under the Cost and Works Accountants Act, 1959.

These standards must also have received the approval of the Central Government, ensuring that all cost audits are conducted consistently and with professional rigour.

Sub-section (4): Cost Audit is Additional to Financial Audit

The cost audit required under Section 148 is intended to complement, not replace, the regular financial audit required under Section 143.

This means companies subject to cost audits must continue to have their financial statements audited by a statutory financial auditor, and the cost audit will serve as an additional layer of financial transparency and compliance.

Sub-section (5): Applicability of Auditor’s Rights and Duties to Cost Auditors

The qualifications, disqualifications, rights, duties, and obligations that apply to statutory auditors under this chapter will also apply to cost auditors, to the extent relevant.

The company must also provide the cost auditor with all necessary assistance, access, and facilities to enable them to carry out the cost audit effectively.

Submission of Cost Audit Report

Upon completion, the cost audit report must be submitted directly to the Board of Directors.

Sub-section (6): Submission of Cost Audit Report to Central Government

After receiving the cost audit report, the company is required to submit a copy of the report to the Central Government within 30 days from the date the Board receives it.

The submission must include:

The full cost audit report.

Explanations and clarifications on any reservations or qualifications raised by the cost auditor in the report.

This ensures the government has direct visibility into any concerns raised by the cost auditor, particularly where these may indicate compliance breaches or inaccurate cost disclosures.

Sub-section (7): Requirement to Furnish Additional Information

If, after reviewing the cost audit report and accompanying explanations, the Central Government decides that further information is required, it can formally request the company to provide such additional information.

The company must comply and furnish the requested information within the timeframe specified by the Central Government.

Sub-section (8): Penalties for Non-Compliance

This section establishes clear penalties for companies, officers, and cost auditors who fail to comply with the provisions of Section 148.

(a) Penalty on Company and Officers

If the company or its officers fail to comply, they will be liable for punishment in the same manner as provided under Section 147(1), which includes:

Fine on the company: ?25,000 to ?5,00,000.

Fine on each officer in default: ?10,000 to ?1,00,000.

(b) Penalty on Cost Auditor

If the cost auditor fails to comply with the requirements under Section 148, they will be liable for punishment in the same manner as under Section 147(2) to 147(4), including:

Fine: ?25,000 to ?5,00,000 (or 4 times the remuneration, whichever is less).

Enhanced penalties (including imprisonment up to 1 year and higher fines) if the violation is found to be deliberate, fraudulent, or intended to deceive.