To enable development of relevant cost accounting methodologies and standards to increase the competitiveness of the Indian manufacturing sector, and to advise the Government on suitable measures for the same, a Group of Experts was constituted under the chairmanship of Shri B.B.Goyal, Cost Advisor. The Expert Group has reviewed the Cost Accounting Record Rules and their continued relevance in the contemporary competitive business environment, has recommended the Companies (Cost Accounting Records) Rules, 2011(CARR) which were issued by the Central Government.
The basic aim behind the amendment to the existing Cost Accounting Record Rules is to:
- induce the companies to have control over their operations and costs, thereby making optimum utilization of resources.
- inculcate among companies in an industry, a practice whereby records are maintained under generally accepted cost accounting principles in a systematic way and on a uniform basis, thereby improving the competitiveness of the Indian Industry.
Earlier, there were different notifications with separate rules for each of the 44 industries for preparation and maintainance of Cost Accounting Records. With the new Cost Accounting Record Rules, 2011 having been notified, CARR for 36 industries have been superseded. As per these rules, the Central government has directed that all the companies engaged in the production, processing, manufacturing or mining activity are required to maintain cost records.
Provisions of Companies (Cost Accounting Records) Rules, 2011:
I) Applicability of the Companies (Cost Accounting Records) Rules, 2011:
The Companies (Cost Accounting Records) Rules, 2011 shall be applicable to all the companies including foreign companies defined under section 591 of the Companies Act, 1956, which are engaged in:
- the production, processing, manufacturing or mining activities, (Click here to see the definition of production activity, processing activity, manufacturing activity and mining activity) and which satisfy any one of the following criteria:
- Aggregate value of net worth as on the last date of the immediately preceding financial year exceeds Rs. 5 crores; [or]
- Aggregate value of the turnover (Click here to see the definition of turnover) made by bthe company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees [or]
- The company's equity or debt securities are listed [or] are in the process of listing on any recognized stock exchange, whether in India or outside India.
However the provisions of the Companies (Cost Accounting Records) Rules, 2011 are not applicable to:
- a company which is a body corporate incorporated under any special act.
- the activities or products covered in any of the following rules:
- Cost Accounting Records (Bulk Drugs) Rules, 1974
- Cost Accounting Records (Formulations) Rules, 1988
- Cost Accounting Records (Fertilizers) Rules, 1993
- Cost Accounting Records (Sugar) Rules, 1997
- Cost Accounting Records (Industrial Alcohol) Rules, 1997
- Cost Accounting Records (Electricity Industry) Rules, 2001
- Cost Accounting Records (Petroleum Industry) Rules, 2002
- Cost Accounting Records (Telecommunications) Rules, 2002
The companies covered under the above mentioned 8 rules (a to h) shall continue to maintain cost records as mentioned in the respective rules.
II) Maintenance of records:
Every company to which these rules apply(including all units and branches) has to maintain cost records (Click here to see the definition of cost records) on a regular basis (monthly/ quarterly/ half-yearly/ annual basis) for each product and activity for every financial year.
These cost records should be prepared in accordance with the generally accepted cost accounting principles and cost accounting standards issued by the Institute of Cost and Works Accountats of India ICWAI, which shall enable the company in the calculation of the cost of production per unit, cost of sales, cost of operations and margin.
All the cost records and cost statements mentioned above, shall be reconciled with the audited financial statements for the financial year and such cost records, cost statements and reconciliation statements relating to a period not less than eight financial years should be kept in good order.
III) Form of compliance report, authentication of the compliance report and time Limit for submission of Compliance Report:
Every company should submit in Form A (Click here to see the Form A) a Compliance Report along with Annexure (Click here to see the Form B – form of Compliance report and annexure) thereto approved by the Board of Directors and duly authenticated by the cost accountant (Click here to see the definition of Cost Accountant), to the Central Government within 180 days of the close of the financial year to which the report relates.
IV) Penalties for non compliance with these rules
1) Penalties for cost accountant: Every cost accountant who contravenes the provisions of these rules with regard to the form of the compliance report shall be punishable with fine which may extend to Rs. 5000/-.
2) Penalties for the Company and every officer thereof who is in default including the persons referred to in sub-section(6) of section 209, if contravenes any of the provisions of the Rules :
- Sec. 642(2):- Company and every officer of the company who is in default shall be punishable with a fine which may extend to Rs.5,000/- and where the contravention is a continuing one, with a further fine which may extend to five hundred rupees for every day after the first day during which such contravention continues.
- Sec. 209(5) & (7)
- If there is a Managing Director,
- then Managing Director, Manager and all officers and employees, any person who is authorized/charged by the Board of Director/Managing Director/Managers
- If there is no Managing Director,
- then all directors shall
- If there is a Managing Director,
- be punishable with Imprisonment for a term which may extend to 6 months [or] with a fine which may extend to Rs.10,000 [or] with both.
V) Pros of Companies (Cost Accounting Records) Rules, 2011
The major pros the above mentioned rules are as follows:
- Maintenance of cost records as per these rules enables the company to exercise control over the various operations and costs with a view to achieve optimum economies in utilization of resources.
- The maintenance of cost records enables the management of the companies in decision making.
- Enables comparison of the various companies within an industry as all the companies maintain records on a standard basis.
- Increases competitiveness among the various companies in an industry thereby leading to better efficiency.
- Helps the companies in managing competitive advantage over the other companies in the industry
VI) Cons of Companies (Cost Accounting Records) Rules, 2011
The major cons of the above mentioned rules are as follows:
- The companies have to incur a cost on maintenance of the records on a standard basis.
- With the increase in the competitiveness among companies there might be a wastage of the resources.
- Through sharing of the sensitive corporate cost information, the competitors can easily restructure their corporate strategies in the market place.