Cost Accounting & CAS Compliance: Who Needs It and Who Does Not
Whether Cost Accounting & CAS Compliance applies to a given business is the first thing worth settling, and it is where most of the early questions land. The questions below are the ones raised most often in practice; the full scope of the service is on the Cost Accounting & CAS Compliance page.
Who is required to maintain cost records under the Companies Act?
Companies engaged in the production of goods or provision of services listed in Table A (regulated sectors, such as telecommunications, electricity, petroleum, and defence-related production) or Table B (non-regulated sectors, covering a wide range of manufacturing and specified service activities) of the Companies (Cost Records and Audit) Rules, 2014, are required to maintain cost records once their overall turnover from all products and services crosses the threshold prescribed in the Rules. The obligation is sector-and-turnover specific — it does not apply to every company, and it does not apply only to very large companies; mid-sized manufacturers in a listed sector can be well within scope.
In practice: Applicability is one of the most commonly misjudged areas we encounter — companies either wrongly assume exemption because they think of themselves as a 'services' business, or wrongly assume applicability by copying a competitor's practice. We always start with a specific sector-mapping exercise, not an assumption.
What is the difference between cost record maintenance and cost audit?
Cost record maintenance is the base obligation — keeping the prescribed particulars of cost, in the format contemplated by Rule 3, once the lower turnover threshold is crossed for a listed sector. Cost audit is a higher obligation — triggered at a further, higher turnover threshold — under which those cost records must additionally be audited annually by a Cost Accountant in practice and the resulting report filed with the MCA in Form CRA-4. A company can be required to maintain cost records without being required to have them audited; audit applicability is a separate, higher bar.
In practice: We treat these as two distinct compliance checkpoints in every applicability review — a company that only checks the audit threshold and misses the lower record-maintenance threshold can still be in default even if it never crosses the audit trigger.
What are Cost Accounting Standards (CAS) and who issues them?
Cost Accounting Standards are issued by the Institute of Cost Accountants of India (ICMAI) to bring uniformity and consistency to how costs are classified, measured, and assigned across companies maintaining statutory cost records. They cover, among other areas, classification of cost (CAS-1), capacity determination (CAS-2), overheads (CAS-3), cost of production for captive consumption (CAS-4), and further standards addressing material cost, employee cost, depreciation and amortisation, royalty and technical know-how fees, and industry-specific costing situations. Cost records maintained under the Companies (Cost Records and Audit) Rules, 2014 are expected to be prepared in conformity with the applicable CAS.
In practice: CAS conformity is not a formality — a cost auditor will specifically test allocation methodology against the relevant standard, and a departure without documented justification is a common source of audit qualification.
Who can be appointed as a cost auditor?
Only a Cost Accountant in practice — a member of the Institute of Cost Accountants of India (ICMAI) holding a valid certificate of practice — can be appointed as cost auditor under Section 148 of the Companies Act 2013. The appointment is made by the Board of Directors, and the appointment must be intimated to the Central Government electronically in Form CRA-2 within the timeline prescribed by the Rules. The Chartered Accountant firm conducting the company's statutory financial audit cannot simultaneously serve as its cost auditor for the same period — cost audit and financial audit are distinct statutory roles performed by members of different professional institutes (ICMAI and ICAI respectively).
In practice: We coordinate the appointment process and scope letter directly with the client's chosen Cost Accountant, ensuring the engagement covers every product/plant that falls within the CRA Rules' scope — a partial-scope appointment is a common and avoidable gap.
How does PNPC handle multi-plant or multi-product cost accounting?
We design the cost centre hierarchy to mirror your actual operational structure — by plant, department, process, and product/SKU — so that cost records can be maintained, reported, and audited at whatever granularity your business and the applicable CAS require. Inter-plant transfers and shared-service allocations (a central procurement or quality function serving multiple plants, for example) are handled with a documented, consistent allocation basis rather than an ad hoc split.
In practice: Multi-plant businesses are where undocumented allocation bases cause the most friction with a cost auditor — the first question is almost always 'how was this shared cost split between plants, and is that basis applied consistently'.
What is the practical difference between Table A and Table B of the CRA Rules?
Table A of the Companies (Cost Records and Audit) Rules, 2014 lists regulated sectors — activities such as telecommunications, electricity generation and distribution, petroleum products, and specified defence-related production — which are generally subject to closer government oversight given their strategic or public-utility character. Table B lists non-regulated sectors — a broad range of manufacturing and specified service activities not falling under direct sectoral regulation in the same way. The threshold turnover figures for record maintenance and cost audit applicability, and in some respects the compliance emphasis, can differ between the two tables, so correctly identifying which table (if any) your activity falls under is a necessary first step.
In practice: We always confirm the current text of the Rules and any amendment notifications before finalising an applicability opinion — the sector lists and thresholds in Table A and Table B have been amended by the Ministry of Corporate Affairs since the Rules were first notified, and relying on an outdated version of the list is a real risk.
Can a company voluntarily maintain CAS-aligned cost records even if not statutorily required to?
Yes, and many businesses do. There is no restriction on a company adopting CAS-aligned costing methodology voluntarily for internal management purposes, even where it falls below the CRA Rules' applicability thresholds. The benefit is twofold: better internal decision-making from day one, and a smoother, lower-cost transition to full statutory compliance if and when the company does cross the applicable threshold, because the underlying discipline is already in place.
In practice: We recommend voluntary CAS alignment to growth-stage manufacturers specifically because retrofitting a costing system under audit-deadline pressure, in the first year applicability is triggered, is materially more stressful and expensive than building it in gradually beforehand.
What is the role of the Audit Committee in relation to cost audit?
Where a company has a mandatory Audit Committee under Section 177 of the Companies Act 2013, the Committee is generally responsible for recommending the appointment, remuneration, and terms of appointment of the cost auditor to the Board, which then formally appoints the cost auditor. The Audit Committee also typically reviews the cost audit report and any qualifications raised, as part of its broader oversight of the company's financial and cost control environment.
In practice: We prepare a concise Audit Committee briefing note summarising cost audit findings and variance trends each cycle, so the Committee's review is substantive rather than a formality based only on the auditor's signed report.
Does cost audit applicability change if the company's turnover fluctuates around the threshold year to year?
Applicability is assessed based on the turnover of the immediately preceding financial year, as specified in the Rules — so a company that crosses the threshold in one year and dips below it the next needs to check the specific continuation or exit provisions in the Rules rather than assume the obligation automatically lapses the moment turnover dips. We reassess applicability at the start of every financial year rather than relying on a single historical determination.
In practice: Companies close to the threshold, particularly those with cyclical or lumpy revenue, are the group most likely to get this wrong in either direction — we specifically flag borderline cases for reassessment every year rather than carrying forward a prior year's conclusion by default.
Where this sits in the wider engagement
Cost Accounting & CAS Compliance rarely arrives on its own. The statutory basis and the current requirements are set out on the Cost Accounting & CAS Compliance service page, and the related services are grouped under Accounting Payroll.
What PNPC does
PNPC Global has practised since 1986 across India and the UAE. On Cost Accounting & CAS Compliance we take the work end to end — reviewing the facts, preparing and filing what is required, and dealing with the authority through to closure.