EMERGING ROLE OF COST ACCOUNTANTS UNDER THE COMPANIES

EMERGING ROLE OF COST ACCOUNTANTS UNDER THE COMPANIES ACT 2013 Dr. B RAVI, M. B. A. , F. C. S. , Ph. D. , COMPANY SECRETARY IN PRACTICE GURU NILAYAM OLD NO. 16, NEW NO. 42, RATHINAM STREET, GOPALAPURAM CHENNAI- 600086 044 -28350517/1055, 98400 82545 bravics@gmail. com SEPTEMBER 2015

1. Who is a Cost Accountant?

�Cost Accountant means a cost accountant as defined in Section 2(1)(b) of the Cost and Works Accountants Act, 1959. (Section 2(28) of the Companies Act 2013). �According to Section 2(1)(b) of the Cost and Works Accountants Act, 1959 Cost accountant means a person who is a member of the Institute.

2. Can a Cost accountant be considered as an “Expert” for the purpose of the Companies Act 2013?

�Yes. According to Section 2(38) of the Companies Act 2013, the term Expert includes besides others, a Cost Accountant also.

3. What is the role of Cost Accountant in incorporation of a Company?

�Section 7 of the Companies Act 2013 under sub section 1 details various documents and information to be filed with the Registrar within whose jurisdiction the registered office of a company is proposed to be situated. �One such document under Section 7(1)(c) of the Companies Act 2013 is a declaration in the form prescribed under Rule 14 of the Companies (Incorporation) Rules 2014 to be filed with the Registrar. �This declaration in Form No INC 8 can be given by a Cost Accountant who is engaged in the formation of the company declaring that all the requirements of this Act and the rules made thereunder in respect of registration and matters precedent or incidental thereto have been complied with.

4. Can a Cost Accountant appointed as internal auditor? be

As per Section 138 read with Rule 13 of Companies (Accounts) Rules 2014 the following class of companies are required to have Internal Auditor/s: Class of Companies Conditions Listed Company Unlisted Public Company Applicable irrespective of any criteria Paid-up Share Turnover Capital Outstanding Borrowings Deposits Rs. 50 Crore or Rs. 200 Crore Rs. 100 Crore or Rs. 25 Crore or more Private Company during or more at any preceding during point financial year preceding financial year. Turnover during point during Outstanding Borrowings Rs. 200 crore or more during Rs. 100 crore or more at any preceding financial year point of time during preceding financial year.

� Time Limit for appointing: An existing company covered under any of the above criteria shall comply with the requirements of section 138 and this rule within six months of commencement of Section 138. i. e on or before 30. 09. 2014 � Qualification of Internal Auditor: He may either be a Chartered accountant or a Cost accountant, or such other professional as may be decided by the Board. The term “Chartered Accountant” shall mean a Chartered Accountant whether engaged in practice or not. The internal auditor may not be an employee of the company; � Scope and Periodicity of Audit: The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the scope, functioning, periodicity and methodology for conducting the internal audit. � Report to Board: The internal audit shall be conducted and

5. What are the powers and duties of Cost Auditors?

6. State the class of companies that are required to include in the books of accounts kept by them particulars relating to the utilisation of materials or labour or to other items of cost?

� Effective 31. 12. 2014, as per the Companies (Cost Records and Audit) Amendment Rules 2014 Rule 3 of the Companies (Cost Records and Audit) Rules 2014 details the class of companies which shall include cost records for such products or services in the books of accounts provided that they have an overall turnover of Rs. 35 crore or more during the immediately preceding financial year. � The companies include foreign companies as defined under Section 2(42) of the Companies Act 2013 except that those covered under Serial no 33 of the table under Non regulated sectors. � Companies Cost Records and Audit Rules 2014 shall not apply to a company which is classified as micro enterprise or a small enterprise including as per the

7. State the categories of companies that are required to have cost audit?

a) A company which is covered under Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 and whose revenue from exports on foreign exchange exceeds 75% of its total revenue is not required to get its cost records audited in accordance with the Rules. b) A company which is covered under Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 and operating from a SEZ is not required to get its cost records audited in accordance with the Rules. c) Every company covered under Rule 3 item A (regulated sectors) whose overall annual turnover from all its products and services during the immediately preceding Financial Year is Rs. 50 Crore or more and the aggregate Turnover of the Individual product/s or service/s for which cost records are required to be maintained is Rs. 25 Crores or more shall get its cost records audited in accordance with the Rules. d) Every company covered under Rule 3 item B (non-regulated sectors) whose overall annual turnover from all its products and services during the immediately preceding Financial Year is Rs. 100 Crore or more and the aggregate Turnover of the Individual product/s or service/s for which cost records are required to be maintained is Rs. 35 Crores or more shall get its cost records audited in

8. State the formats in which the cost records are required to be maintained?

�Effective 01. 04. 2014, every company under these rules shall in respect of each financial year shall maintain cost records in form CRA. 1. �However companies covered in S. No. 12, 24 to 32 falling under Rule 3, item B is required to maintain the Cost Records on or after 01. 04. 2015. �The term ‘Company’ includes all units and branches thereof. �Rule 5(2) and (3) details the purpose of maintaining Cost Records.

9. What is the time limit within which Cost Auditor should be appointed?

�Cost Auditor shall be appointed by the category of companies covered in Rule 3 and meet the threshold limits laid down in Rule 4 shall within 180 days of the commencement of every financial year appoint a cost auditor.

Who will appoint the cost auditor?

�The Board of directors shall appoint the cost auditor who shall be a cost accountant in practice on such remuneration as maybe determined by the members in such manner as maybe prescribed-S. 148(3) �Rule 14 of the Companies (Audit and Auditors) Rules 2014 prescribes as follows: �The board shall appoint an individual who is a cost accountant in practice, or a firm of cost accountants in practice, as cost auditor on the recommendations of the Audit committee, which shall also recommend remuneration for such cost auditor �The remuneration recommended by the Audit Committee shall be considered and approved by the board and ratified subsequently by the shareholders.

�In case of companies which are not required to constitute an audit committee, the board shall appoint an individual who is a cost accountant in practice or a firm of cost accountants in practice as cost auditor and the remuneration of such cost auditor shall be ratified by shareholders subsequently.

10. What is the tenure of office of Cost Auditor?

�As per Rule 6(3), every cost auditor appointed shall continue in such capacity till the expiry of 180 days from the closure of the financial year or till he submits the cost audit report for the financial year for which he has been appointed. �Any casual vacancy in the office of cost auditor, the board has the power to fill up the vacancy within 30 days of vacancy and inform the Central Government in Form CRA. 2 within 30 days of appointment.

11. State the obligation on part of the company after the appointment of Cost Auditor.

�As per Rule 6(2), every company shall inform the Cost Auditor concerned of his appointment and file a notice of such appointment with the Central Government within a period of 30 days of the board meeting in which the appointment was made or within a period of 180 days of commencement of the financial year whichever is earlier. �The notice of intimation shall be in

12. State the requirement relating to cost audit report.

�The cost auditor who conducts an audit of the cost records shall submit his report with reservations or qualifications or suggestions if any in Form CRA. 3 to the board of directors within a period of 180 days from the closure of the financial year to which the report relates. �The board of directors shall consider and examine the report and in particular the reservations or qualifications contained therein. �The company shall within a period of thirty days from the date of receipt of report furnish the Central Government in Form CRA. 4 along with full information and explanation for every reservation/ qualification along with applicable

13. Duty of cost auditor in reporting fraud?

� According to Rule 6(7), the provision of Section 143(12) and the rules made thereunder shall apply mutatis mutandis to a cost auditor during performance of his functions under section 148 of the Act read with these rules. � Section 143(12) as amended by the Companies (Amendment) Act 2015, reads as under: � “Notwithstanding anything contained in this section, if an auditor of a company in the course of the performance of his duties as auditor, has reason to believe that an offence of fraud involving such amount or amounts as may be prescribed, is being or has been committed in the company by its officers or employees, the auditor shall report the matter to the Central Government within such time and in such manner as may be prescribed: � Provided that in case of a fraud involving lesser than the specified amount, the auditor shall report the matter to the audit committee constituted under section 177 or to the Board in other cases within such time and in such manner as may be prescribed: � Provided further that the companies, whose auditors have

14. Can a Cost Accountant be appointed as an Independent Director?

�Section 149 mandates certain classes of companies to have certain number of Independent Directors on the Board. For this purpose sub section 6 of section 149 details the conditions to be fulfilled by a director to be appointed as an Independent Director. �There is no prohibition for a Cost Accountant to be appointed as an Independent Director except that neither himself nor his relatives is/has been an employee/ proprietor/ partner in any of the 3 financial years immediately preceding the financial year in which he is proposed to be appointed of a firm of cost auditors of the

15. What is the role of Cost Accountants in Merger & Amalgamation of companies?

�Section 232 of the Act deals with merger & amalgamation of companies which inter alia provides under sub section 7 that every company in relation to which an order is made by the tribunal approving the scheme shall until the completion of the scheme is required to file a statement in such form and within such time as may be prescribed with the Registrar every year duly certified. This certification, certifying that the scheme is being complied with in accordance with the order of the tribunal or not can be given by a Cost Accountant.

16. Can a Cost Accountant be eligible to be appointed as interim administrator or administrator by the tribunal on receipt of an application for revival and rehabilitation of a sick company?

�Section 259 of the Act empowers the tribunal to appoint interim administrator or company administrator as the case may be from a data bank maintained by the Central Government or any agency or Institute authorized by the Central Government. �The data bank shall consist names of professionals Accountants. which include Cost

17. Can a Cost Accountant be appointed as Company Liquidator?

�For the purpose of winding up of a company by the tribunal under Section 275 of the Act, the tribunal at the time of passing the order of winding up shall appoint an official liquidator or a liquidator from the panel mentioned under section 275 (2). �The panel shall comprise of professionals including Cost Accountants having atleast 10 years experience in company matters.

18. Can a Cost Accountant provide professional assistance to Company Liquidator?

�Section 291 of the Act empowers the Company Liquidator to appoint Cost Accountants on such terms and conditions as may be necessary to assist him in the performance of his duties and functions under the Act. However the above power can be exercised by the liquidator only with the sanction of the tribunal. �The Cost Accountant so appointed shall disclose forthwith to the tribunal in the prescribed form any conflict of interest or lack of independence in respect of his

19. Is a Cost Accountant entitled to appear before the tribunal under section 432 if the tribunal passes an order for examination of promoters, directors etc. , ?

�Pursuant to section 300(4), a person ordered to be examined under section 300 based on the order of the tribunal may at his own cost employ Cost Accountants who shall be at liberty to put to him such questions as a tribunal may consider just for the purpose of enabling him to explain or qualify answer given by him.

20. Can a Cost Accountant be appointed as technical member?

�Yes. A Cost Accountant is eligible for appointment as a technical member if he is/ has been in practice as a Cost Accountant for atleast 15 years.

21. Whether a Cost Accountant is eligible to present a case before the tribunal or appellate tribunal on behalf of a party to any proceedings or appeal before the tribunal or appellate tribunal?

�Section 432 which deals with right to legal representation inter alia provides that a party to any proceeding or appeal before the Tribunal or the Appellate Tribunal, as the case may be, may either appear in person or authorise one or more Cost Accountants to present his case before the tribunal or the Appellate tribunal.

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