# Cost Audit — Section 148

## Two Distinct Requirements

Section 148 governs two things:

1. Maintenance of Cost Records — by companies engaged in certain goods/services.

2. Audit of Cost Records — by a Cost Accountant, when CG so directs.

These must not be confused: every company maintaining cost records is NOT automatically subject to cost audit.

## Who Must Maintain Cost Records?

A company (including a foreign company having a place of business in India) which:

Is engaged in goods/services specified in Table A or Table B (notified categories), AND
Has overall turnover from all products & services ≥ ₹35 crores during the immediately preceding FY,

must include cost records in its Books of Account.

Cost records = particulars relating to utilisation of material, labour or other items of cost.

## Approval of Cost Statements

The cost statements (and other statements annexed to the cost audit report) shall be approved by the BOD before being signed on its behalf by a director authorized by the BOD, and submitted to the cost auditor.

## Who Can Be a Cost Auditor?

A Cost Accountant (CMA) holding Certificate of Practice.
Statutory auditor appointed under Section 139 CANNOT be appointed as cost auditor — to maintain independence.

## When is Cost Audit Required?

CG may direct audit of cost records of a company having a prescribed net worth or turnover. So cost audit is not automatic with cost record maintenance — it is triggered by CG's direction (or prescribed Rules).

## Cost Audit Report Flow

1. Cost auditor submits report to the BOD.

2. Company shall, within 30 days of receipt of cost audit report, furnish it to the Central Government along with full information and explanation on every reservation/qualification in the report.

3. CG may call for further information; company must furnish within time specified by CG.

## Other Compliance Requirements

Cost auditor must comply with Cost Auditing Standards.
Provisions regarding qualification, disqualification, rights, duties, obligations and fraud reporting applicable to the company's statutory auditor (under Sections 139 onwards) shall mutatis mutandis apply to the cost auditor.
Duty of the company to give all assistance and facilities to the cost auditor.

## Punishment

Default by company, officer or cost auditor — punished in the same manner as Section 147.

## Critical Distinctions

Aspect	Statutory Audit	Cost Audit
Auditor	CA	CMA
Appointed by	Members (u/s 139)	BOD
Report to	Members	BOD; copy to CG within 30 days
Standards	Auditing Standards	Cost Auditing Standards

Worked example

### Example 1

Q. ABC Ltd. is engaged in manufacture of a Table-A item with turnover of ₹40 crores in FY 2024-25. Is it required to maintain cost records? Can its statutory auditor M/s P & Co (CAs) also be appointed as its cost auditor?

A. Yes, ABC must maintain cost records since it is engaged in a Table-A item and turnover (₹40 cr) exceeds the ₹35 crore threshold. However, M/s P & Co cannot be appointed as cost auditor — first, only a CMA holding a Certificate of Practice can act as cost auditor; second, the statutory auditor under Section 139 is specifically barred from being the cost auditor.

### Example 2

Q. The cost auditor submits his cost audit report to the BOD of XYZ Ltd. on 1st June 2026, with a qualification on inventory valuation. By when must XYZ submit it to CG and in what manner?

A. Within 30 days, i.e., by 1st July 2026. XYZ must furnish the cost audit report to CG along with full information and explanation on the qualification regarding inventory valuation.

⚠️ Common exam mistakes

Believing every company maintaining cost records is automatically subject to cost audit — cost audit requires a specific CG direction or prescribed Rules.
Assuming a CA can be a cost auditor — only a CMA in practice qualifies.
Appointing the statutory auditor as cost auditor — expressly prohibited.
Forgetting the 30-day window to file cost audit report with CG.
Missing that foreign companies with a place of business in India can also fall within cost record requirements.

Bare-Act text Section 148 · Companies Act, 2013 · click to expand

Notwithstanding anything contained in this Chapter, the Central Government may, by order, in respect of such class of companies engaged in the production of such goods or providing such services as may be prescribed, direct that particulars relating to the utilisation of material or labour or to other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies. If the Central Government is of the opinion, that it is necessary to do so, it may, by order, direct that the audit of cost records of class of companies, which are covered under sub-section (1) and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted in the manner specified in the order.

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Cost Audit [Section 148]

Worked example

⚠️ Common exam mistakes