Cost Audit Under Section 148, Companies Act 2013: Mandated Industries, CRA-3 Report & CRA-4 Filing

What Is Cost Audit Under Section 148, Companies Act 2013?

Section 148 of the Companies Act 2013 mandates cost audit for companies in specified industries. A cost audit is an independent examination of the cost records maintained by a company to ensure they are accurate, complete, and compliant with cost accounting standards.

Unlike financial audit (statutory audit under Section 143), cost audit focuses specifically on cost of production, cost of goods sold, and operational efficiency. The cost auditor must be a practicing Cost Accountant registered with the Institute of Cost Accountants of India (ICAI).

Which Industries Are Mandated for Cost Audit?

Cost audit is mandatory for companies in the following sectors:

• Pharmaceuticals: All pharmaceutical manufacturers generating revenue above Rs.35 crores
• Cement: All cement manufacturers generating revenue above Rs.35 crores
• Steel: All steel manufacturers generating revenue above Rs.35 crores
• Fertilizers: All fertilizer manufacturers
• Sugar: All sugar manufacturers generating revenue above Rs.10 crores
• Vegetable oils and edible oils: All manufacturers generating revenue above Rs.35 crores
• Aluminium and copper: All manufacturers generating revenue above Rs.35 crores
• Chemicals: Specified chemical manufacturers generating revenue above Rs.35 crores
• Leather: All leather manufacturers generating revenue above Rs.40 crores
• Declared goods: Products notified under the Cost Audit Rules

The threshold is based on turnover in the immediately preceding financial year. If a company's turnover falls below the threshold, cost audit is not mandatory (unless it remains above the threshold for two consecutive years).

Section 148(1) & The Mandated Timeline

Section 148(1) requires the company to appoint a cost auditor within 30 days of the Board approval of financial statements for the preceding year. The cost auditor is appointed for a period of not more than 8 consecutive financial years (with a mandatory gap of at least 2 years before reappointment).

Once appointed, the cost auditor must conduct the cost audit and file their report.

CRA-3: The Cost Audit Report

The cost auditor submits their findings in Form CRA-3 to the Board of Directors within 180 days from the end of the financial year (or such extended period as the Board may permit).

CRA-3 must include:

• Verification of cost records maintained by the company
• Audit findings on accuracy and completeness of cost data
• Compliance with Cost Accounting Standards issued by the ICAI
• Observations on whether cost records reflect true and fair position
• Recommendations for improvement
• Statement of adjustments (if any) to cost records

The Board is responsible for reviewing the CRA-3 report and ensuring the company responds to any deficiencies flagged by the cost auditor.

CRA-4: Filing Deadline & Procedure

After the Board reviews the CRA-3 report, the company must file Form CRA-4 (the final cost audit report) with the Ministry of Corporate Affairs (MCA) through the MCA portal.

CRA-4 Filing Deadline:

• File within 30 days from the date of Board approval of the CRA-3 report
• CRA-3 itself must be completed within 180 days from FY-end
• Total window: Approximately 7-8 months from the end of the financial year

For the FY 2024-25 (ending 31 March 2025), the CRA-4 filing deadline is 31 January 2026.

CRA-4 Contents:

• Certified copy of the CRA-3 report
• Board's resolution approving the cost audit report
• Confirmation that all observations have been addressed or explained
• Auditor's signature and registration number with ICAI

Cost Audit Records: Mandatory Requirements

Under Section 148, the company must maintain cost records as prescribed by the Cost Audit Rules. These records must include:

• Raw material consumption and costs
• Direct labour costs
• Manufacturing overheads
• Production volumes and units
• Stocktaking records
• Costing statements

These records must be preserved for 6 years and made available for audit.

Penalties for Non-Compliance

Failing to conduct cost audit, appoint a cost auditor, or file CRA-4 attracts penalties:

• Section 148(1): Failure to appoint cost auditor - penalty up to Rs.25,000 (for company) and Rs.5,000 (for officers in default)
• Section 148(3): Failure to file CRA-4 or falsification of cost records - penalty up to Rs.5 lakhs and/or imprisonment up to 3 years
• Non-maintenance of cost records - penalty up to Rs.10,000 or more

The Serious Fraud Investigation Office (SFIO) is empowered to investigate violations of cost audit provisions.

Key Compliance Checkpoints for Your Business

If you fall under a mandated industry:

• Check your FY turnover against the prescribed threshold
• Appoint a practicing Cost Accountant within 30 days of Board approval of financial statements
• Ensure cost records are maintained from day one of the financial year
• Provide the cost auditor full access to records
• Review the CRA-3 report and address all observations
• File CRA-4 within 30 days of Board approval
• Maintain copies of all cost audit filings for regulatory scrutiny

Non-compliance can invite Department of Corporate Affairs scrutiny, adjudication orders, and reputational damage. Cost audit is not a box-ticking exercise--it's a governance requirement that demonstrates transparency to regulators, lenders, and investors.

I'm CA Harun Raaj, Visakhapatnam. If your company is subject to cost audit or you need guidance on CRA-3/CRA-4 filing, reach out--we help businesses navigate compliance without missteps.

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