What is Cost Audit in India? A Complete Guide for 2026

Cost audit is a systematic examination of cost records and cost statements of a company by a qualified Cost and Management Accountant (CMA). In India, cost audit is governed by Section 148 of the Companies Act, 2013, and the Companies (Cost Records and Audit) Rules, 2014.

Who Needs a Cost Audit?

Under the current rules, cost audit is mandatory for companies engaged in specific manufacturing and service industries that exceed prescribed turnover thresholds. For regulated sectors (defence, petroleum, pharmaceuticals, fertilizers, sugar, and industrial alcohol), companies with a turnover of ₹35 Crore or above require a cost audit. For non-regulated sectors (all other specified industries), the threshold is ₹100 Crore.

The Cost Audit Process

The cost audit process begins with the appointment of a cost auditor by the Board of Directors, which must be ratified by the shareholders at the Annual General Meeting. The appointed auditor must be a CMA holding a valid Certificate of Practice (COP) from the Institute of Cost Accountants of India (ICMAI).

Once appointed, the cost auditor examines the cost records maintained by the company in Form CRA-1, verifies the accuracy of cost statements, and prepares the Cost Audit Report in Form CRA-3. This report includes observations on cost efficiency, adequacy of cost records, and compliance with applicable cost accounting standards.

Key Forms in Cost Audit

Form CRA-1: The prescribed format for maintenance of cost records. Companies must maintain these records on a continuous basis throughout the financial year.

Form CRA-2: Intimation of appointment of cost auditor to the Central Government. Must be filed within 30 days of the Board meeting approving the appointment.

Form CRA-3: The Cost Audit Report submitted by the cost auditor. Must be submitted to the company's Board within 180 days from the end of the financial year.

Form CRA-4: Electronic filing of the cost audit report with the MCA. Must be filed within 30 days of receipt of the cost audit report.

Penalties for Non-Compliance

Non-compliance with cost audit provisions can attract penalties ranging from ₹25,000 to ₹5,00,000 for the company. Officers in default can be penalized between ₹10,000 and ₹1,00,000. In severe cases, directors may face disqualification under Section 164(2)(a) of the Companies Act.

How to Prepare for a Cost Audit

To prepare for a cost audit, companies should: (1) Ensure cost records in CRA-1 format are up to date, (2) Prepare product-wise cost statements with proper overhead allocation, (3) Reconcile cost accounting records with financial accounts, (4) Keep supporting documents for material consumption, labour allocation, and overhead absorption ready, and (5) Engage a qualified cost auditor well before the due date.

Why Choose Malay Biswas & Co.?

With over 22 years of industrial experience and national-level gold medals from ICMAI, CMA Malay Biswas brings unparalleled expertise to every cost audit engagement. We serve manufacturing companies across textile, FMCG, pharmaceutical, chemical, and construction sectors in Kolkata and across India.

Contact us today for a free compliance assessment to determine if your company requires a cost audit and how we can help you stay compliant.