Imagine you're running a cement factory or a pharmaceutical company. Your regular auditor (appointed under Section 139) checks your financial statements — but does he really dig into how much it costs you to produce one bag of cement? That's where Cost Audit under Section 148 steps in. The Central Government can say: 'Certain industries, you must maintain detailed cost records AND get those records audited.' This section is the legal backbone for that entire requirement.
Who does this apply to? The Central Government prescribes specific classes of companies — typically those in manufacturing or service industries above certain thresholds of net worth or turnover (prescribed by rules). Two things happen: first, under sub-section (1), these companies must maintain cost records (material, labour, overheads — all itemised). Second, under sub-section (2), if the government feels audit is also needed, it directs a cost audit for companies crossing the net worth/turnover threshold.
Who conducts the cost audit? A Cost Accountant (i.e., a member of ICAI-CMA, the Institute of Cost Accountants of India) appointed by the Board of Directors, with remuneration approved by the members. Here's the critical rule: the statutory auditor (appointed under Section 139) cannot be the cost auditor — complete separation is mandatory. The cost auditor must follow Cost Auditing Standards issued by ICAI-CMA with Central Government approval. Cost audit is in addition to, not a replacement for, the Section 143 financial audit.
Reporting chain: The cost auditor reports to the Board of Directors. The company then has 30 days from receiving that report to forward it to the Central Government, along with explanations for any qualifications. If the government wants more info, the company must supply it within the specified time. Non-compliance attracts penalties mirroring Section 147 — for both the company/officers and the defaulting cost auditor. This section is asked frequently as a 4-mark or 8-mark question — especially the appointment rules, the 30-day filing timeline, and the prohibition on dual appointment.
📊 Worked example
Example 1 — Applicability and Appointment
Setup: Rajesh & Co. Pvt. Ltd. manufactures bulk drugs (pharmaceuticals). Its turnover for FY 2024-25 is ₹28,00,00,000 (₹28 crore). The prescribed turnover threshold for cost audit in its industry is ₹25 crore. The company's statutory auditor is CA Priya Iyer.
Question: Is Rajesh & Co. required to get a cost audit done? Who can be appointed?
Working:
- Step 1: Check industry — pharmaceuticals is a prescribed class ✓
- Step 2: Check threshold — Turnover ₹28 crore > ₹25 crore prescribed limit ✓
- Step 3: Therefore, cost audit u/s 148(2) is mandatory
- Step 4: Board must appoint a Cost Accountant (ICAI-CMA member)
- Step 5: CA Priya Iyer (statutory auditor u/s 139) is disqualified from cost audit appointment — proviso to s.148(3) applies
Answer: Yes, cost audit is compulsory. The Board must appoint a separate Cost Accountant; CA Priya Iyer cannot be appointed.
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Example 2 — Timeline for Filing
Setup: The cost auditor of Sharma Cement Ltd. submits his cost audit report to the Board of Directors on 15th September 2025.
Question: By when must the company file this report with the Central Government?
Working:
- Date of receipt of report by Board = 15 September 2025
- Time allowed u/s 148(6) = 30 days from date of receipt
- Deadline = 15 September 2025 + 30 days = 15 October 2025
Answer: Sharma Cement Ltd. must file the cost audit report with the Central Government by 15th October 2025, along with explanations for any qualifications.
⚠️ Common exam mistakes
- Students confuse who appoints the cost auditor. Don't say 'members appoint' — the Board appoints the cost auditor; members only fix the remuneration. Both facts are separately tested.
- Mixing up the reporting line. Many students write that the cost auditor reports to the Central Government directly. Wrong — the cost auditor reports to the Board of Directors; it is the company that then files the report with the Central Government within 30 days.
- Forgetting the dual-appointment prohibition. Students often miss that the Section 139 statutory auditor is explicitly barred from being the cost auditor. If an exam question asks 'Can the existing auditor do the cost audit?' — the answer is always No.
- Treating cost audit as a replacement for financial audit. Section 148(4) is clear: cost audit is in addition to the Section 143 audit. Don't write 'cost audit replaces statutory audit' — that's a guaranteed mark loss.
- Getting the penalty provisions wrong. Students often state a flat fine. Instead, link it to Section 147 — sub-section (1) for the company/officers, sub-sections (2) to (4) for the cost auditor. The examiner wants this cross-reference cited.
📖 Bare Act text — Section 148, Companies Act 2013
(click to expand)
(1) 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: Provided that the Central Government shall, before issuing such order in respect of any class of companies regulated under a special Act, consult the regulatory body constituted or established under such special Act. (2) 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. (3) The audit under sub-section (2) shall be conducted by a cost accountant who shall be appointed by the Board on such remuneration as may be determined by the members in such manner as may be prescribed: Provided that no person appointed under section 139 as an auditor of the company shall be appointed for conducting the audit of cost records: Provided further that the auditor conducting the cost audit shall comply with the cost auditing standards. Explanation.—For the purposes of this sub-section, the expression "cost auditing standards" mean such standards as are issued by the Institute of Cost Accountants of India, constituted under the Cost and Works Accountants Act, 1959 (23 of 1959), with the approval of the Central Government. (4) An audit conducted under this section shall be in addition to the audit conducted under section 143. (5) The qualifications, disqualifications, rights, duties and obligations applicable to auditors under this Chapter shall, so far as may be applicable, apply to a cost auditor appointed under this section and it shall be the duty of the company to give all assistance and facilities to the cost auditor appointed under this section for auditing the cost records of the company: Provided that the report on the audit of cost records shall be submitted by the cost accountant to the Board of Directors of the company. (6) A company shall within thirty days from the date of receipt of a copy of the cost audit report prepared in pursuance of a direction under sub-section (2) furnish the Central Government with such report along with full information and explanation on every reservation or qualification contained therein. (7) If, after considering the cost audit report referred to under this section and the information and explanation furnished by the company under sub-section (6), the Central Government is of the opinion that any further information or explanation is necessary, it may call for such further information and explanation and the company shall furnish the same within such time as may be specified by that Government. (8) If any default is made in complying with the provisions of this section,—(a) the company and every officer of the company who is in default shall be punishable in the manner as provided in sub-section (1) of section 147; (b) the cost auditor of the company who is in default shall be punishable in the manner as provided in sub-sections (2) to (4) of section 147.
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