Do You Need Cost Accounting & CAS Compliance? A Practical Starting Point
Cost accounting compliance in India means keeping prescribed cost records and, above a higher turnover limit in specified sectors, having them audited by a cost accountant in practice, under Section 148 of the Companies Act 2013 and the Companies (Cost Records and Audit) Rules, 2014. It applies by sector and turnover, not to every company, so the first job is to check your product or service list against the Rules. For companies covered under the Rules, cost accounting is not an optional management tool — it is a statutory obligation, backed by a defined set of Cost Accounting Standards (CAS) that prescribe exactly how costs must be classified, allocated, and reported. Getting it wrong does not just distort your product costing — it exposes the company and its officers to statutory penalty. PNPC Global has supported manufacturing and regulated-sector businesses across India with cost record maintenance, CAS-compliant costing systems, and cost audit coordination since 1986.
Understanding the Service
Cost accounting, in the Indian statutory sense, refers to the maintenance of cost records under Section 148 of the Companies Act 2013, read with the Companies (Cost Records and Audit) Rules, 2014. These Rules require specified classes of companies — primarily those engaged in the production of goods or provision of services listed in the tables of the Rules (including strategic sectors such as defence production, telecommunications, petroleum, electricity, and a wide list of manufacturing and infrastructure activities) — to maintain particulars relating to utilisation of material, labour, and other cost items in a form prescribed by the Rules, once specified turnover thresholds are crossed. Where a company crosses the higher threshold set out in the Rules for cost audit applicability, it must additionally have its cost records audited annually by a Cost Accountant in practice, who is a member of the Institute of Cost Accountants of India (ICMAI), and file the resulting cost audit report electronically with the Ministry of Corporate Affairs in Form CRA-4.
For the full scope, current process and what PNPC includes, see the dedicated Cost Accounting & CAS Compliance service page.
Signs This Applies to You
- Your company is engaged in an activity listed in the tables of the Companies (Cost Records and Audit) Rules, 2014, and your turnover from all products and services crosses the prescribed threshold for maintenance of cost records
- Your company additionally crosses the higher turnover threshold prescribed for cost audit applicability within a listed sector, triggering the requirement to appoint a Cost Accountant in practice and file Form CRA-4
- You manufacture goods for captive consumption within a group structure or a related unit, and need a CAS-4-compliant cost of production working for internal transfer pricing, related-party benchmarking, or regulatory submissions
- Your business has multiple product lines or plants and management cannot currently answer, with confidence, which products or plants are actually profitable versus cross-subsidised
How the yearly cycle runs
- Check applicability each year. Compare your products and services with the list in the Rules, and your turnover in the previous financial year with the limits for record-keeping and for audit. Do this at the start of every year, not once.
- Keep the cost records. Covered companies maintain cost records on a regular basis, in the form the Rules prescribe (CRA-1), so that the cost of production or operation per unit can be worked out.
- Appoint the cost auditor, if audit applies. The Board appoints a cost accountant in practice, within 180 days of the start of the financial year. The company intimates the appointment to the Central Government in Form CRA-2, within 30 days of the Board meeting or the 180-day window, whichever is earlier.
- Audit and report. The cost auditor reports to the Board on the cost records, and the company files the report with the Central Government in Form CRA-4 within 30 days of receiving it.
- Reconcile with the financials. The cost auditor needs figures that tie back to the audited financial statements, so time the two exercises together.
Cost audit is not the same as financial audit
Financial audit is done by a Chartered Accountant under Section 143 and gives an opinion on whether the financial statements are true and fair. Cost audit is done by a cost accountant under Section 148 and reports on the cost records and whether they follow the Cost Accounting Standards issued by the Institute of Cost Accountants of India. A company in scope needs both, and a clean financial audit does not clear a cost record default.
Mistakes that show up at audit
- Assuming that only manufacturers are covered. The Rules also list some services, so test your activity against the list.
- Not reassessing when turnover grows. A company that crosses a limit is in default from that year whether or not anyone noticed.
- Rebuilding records at year end. Cost data reconstructed after the fact is hard to defend, and allocation methods drift.
- Appointing a cost auditor for part of the business. The appointment should cover every product and plant inside the scope of the Rules.
- Weak reconciliation between cost records and the books. This is a common reason for a qualified report.
- Mixing cost of production with GST valuation. The CAS-4 cost of production for captive consumption and the GST value of the same goods answer different questions and follow different rules. Keep the working papers separate.
What may change next
The Corporate Laws (Amendment) Bill, 2026 was introduced in the Lok Sabha on 23 March 2026 and referred to a Joint Parliamentary Committee. As drafted, it would amend Section 148 to let the Central Government prescribe cost accounting standards after examining recommendations of the Institute of Cost Accountants of India, to allow multidisciplinary firms to act as cost auditor, and to add personal penalties for the officers responsible for compliance. The committee reported on 3 August 2026 and the Bill has not yet been passed by Parliament, so treat it as a proposal and check its status before relying on either version. For the eligibility test in plain terms, see who needs cost accounting and who does not, for the start-to-finish process the process guide, and for the pricing side of related-party costing the note on transfer pricing documentation.
What This Doesn't Cover
- A pure trading or services business (not engaged in production of goods or the specific listed services) with no manufacturing or processing activity — the CRA Rules are generally targeted at production/processing and specified regulated services, so applicability should be checked, not assumed
- A company below the prescribed turnover threshold for cost record maintenance under the Rules — no statutory cost record obligation currently exists, though voluntary management costing can still add value
- An early-stage company with a single product line and simple cost structure — basic product costing within the general ledger may suffice until complexity (multiple SKUs, multiple plants, captive consumption) justifies a full CAS-aligned system
Quick Answers
What is the difference between financial accounting and cost accounting?
Financial accounting, governed by Section 128 of the Companies Act 2013 and applicable accounting standards, records transactions to produce statutory financial statements — the balance sheet, profit and loss account, and cash flow statement — primarily for external stakeholders, regulators, and tax authorities. Cost accounting, where mandated under Section 148 and the Companies (Cost Records and Audit) Rules, 2014, records the same underlying transactions but reclassified and allocated by product, process, or cost centre, following the methodology prescribed by the Cost Accounting Standards (CAS). The two must reconcile, but they answer different questions: financial accounting answers 'what did the company earn overall', while cost accounting answers 'what does it actually cost to make this specific product, in this specific plant'.
Who is required to maintain cost records under the Companies Act?
Companies engaged in the production of goods or provision of services listed in the tables of the Companies (Cost Records and Audit) Rules, 2014 (which include telecommunications, electricity, petroleum, defence-related production and a wide range of other manufacturing and specified service activities) 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.
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.
Getting This Right From the Start
Talk to PNPC about building cost accounting and CAS compliance that satisfies your statutory obligation and finally tells you what each product actually costs to make.
PNPC Global has advised Chennai, Bangalore and Hyderabad businesses since 1986. Explore the full Accounting & Payroll practice for related services, or go straight to the Cost Accounting & CAS Compliance page for specifics.
Rates, thresholds and filing dates are set by the relevant authority and revised periodically. Treat anything numeric here as "ask PNPC for the current figure," not as a quoted fact.