EXECUTIVE PROGRAMME

UPDATES
FOR
COST AND MANAGEMENT
ACCOUNTING
(Relevant for students appearing in June, 2017 Examination)

MODULE 1 - PAPER 2

Disclaimer-

This document has been prepared purely for academic purposes only and it does not
necessarily reflect the views of ICSI. Any person wishing to act on the basis of this document
should do so only after cross checking with the original source.

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Lesson 1: Introduction to Cost and Management Accounting

COST ACCOUNTING STANDARDS

The Institute of Cost Accountants of India, recognizing the need for structured approach to the
measurement of cost in manufacture or service sector and to provide guidance to the user
organizations, government bodies, regulators, research agencies and academic institutions to
achieve uniformity and consistency in classification, measurement and assignment of cost to
product and services, has constituted Cost Accounting Standards Board (CASB) with the objective
of formulating the Cost Accounting Standards.

The Institute/Board has so far issued 24 Cost Accounting Standards, Generally Accepted Cost
Accounting Principles, 9 Guidance Notes on Cost Accounting Standards and two Guidance Notes
on Treatment of Costs Relating to Corporate Social Responsibility (CSR) Activities and
Maintenance of Cost Accounting Records for Construction Industry Including Real Estate and
Property Development Activity.

COST ACCOUNTING STANDARDS

CAS No Title Objective
CAS-1 Classification of Cost For preparation of Cost Statements
(Revised
2015)
CAS2 Capacity To bring uniformity and consistency in the principles and
(Revised Determination methods of determination of capacity with reasonable
2015) accuracy.
CAS3 Production and To bring uniformity and consistency in the principles and
(Revised Operation Overheads methods of determining the Production or Operation
2015) Overheads with reasonable accuracy.
CAS4 Cost of Production for To determine the assessable value of excisable goods used for
Captive Consumption captive consumption.

CAS5 Average (equalized) To determine averaged/equalized transportation cost

Cost of Transportation
CAS6 Material Cost To bring uniformity and consistency in the principles and
methods of determining the material cost with reasonable
accuracy in an economically feasible manner.
CAS7 Employee Cost To bring uniformity and consistency in the principles and
methods of determining the Employee cost with reasonable
accuracy.
CAS8 Cost of Utilities To bring uniformity and consistency in the principles and

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 methods of determining the Cost of Utilities with reasonable
accuracy.
CAS9 Packing Material Cost To bring uniformity and consistency in the principles and
methods of determining the Packing Material Cost with
reasonable accuracy.
CAS10 Direct Expenses To bring uniformity and consistency in the principles and
methods of determining the Direct Expenses with reasonable
accuracy.
CAS11 Administrative To bring uniformity and consistency in the principles and
Overheads methods of determining the Administrative Overheads with
reasonable accuracy.
CAS12 Repairs And To bring uniformity and consistency in the principles and
Maintenance Cost methods of determining the Repairs and Maintenance Cost
with reasonable accuracy.
CAS13 Cost of Service Cost To bring uniformity and consistency in the principles and
Centre methods of determining the Cost of Service Cost Centre with
reasonable accuracy.
CAS14 Pollution Control Cost To bring uniformity and consistency in the principles and
methods of determining the Pollution Control Costs with
reasonable accuracy.
CAS15 Selling and To bring uniformity and consistency in the principles and
Distribution methods of determining the Selling and Distribution
Overheads Overheads with reasonable accuracy.
CAS16 Depreciation and To bring uniformity and consistency in the principles and
Amortisation methods of determining the Depreciation and Amortisation
with reasonable accuracy.
CAS17 Interest and Financing To bring uniformity and consistency in the principles,
Charges. methods of determining and assigning the Interest and
Financing Charges with reasonable accuracy.
CAS18 Research and To bring uniformity and consistency in the principles and
Development Costs methods of determining the Research, and Development
Costs with reasonable accuracy and presentation of the same.
CAS19 Joint Costs To bring uniformity and consistency in the principles and
methods of determining the Joint Costs.
CAS20 Royalty and Technical To bring uniformity and consistency in the principles and
Know-How Fee methods of determining the amount of Royalty and Technical
Know-how Fee with reasonable accuracy.
CAS21 Quality Control To bring uniformity, consistency in the principles, methods of
determining and assigning Quality Control cost with
reasonable accuracy.

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CAS22 Manufacturing Cost To bring uniformity and consistency in the principles and
methods of determining the Manufacturing Cost of excisable
goods
CAS23 Overburden Removal To bring uniformity, consistency in the principles, methods of
Cost determining and assigning Overburden Removal Cost with
reasonable accuracy.
CAS24 Treatment of Revenue To bring uniformity and consistency in the principles and
in Cost Statements methods for treatment of revenue in cost statements with
reasonable accuracy.

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Lesson 11: Cost Accounting Records and Cost Audit

APPLICABILITY FOR COST AUDIT

Every such class of company and with such threshold limit as may be prescribed in the
Companies (Cost Records and Audit) Rules, 2014, and as amended from time to time shall be
required to get such cost records audited by a cost auditor.

Cost Audit
Every company covered under the Companies (Cost Records and Audit) Rules, 2014 and as
amended from time to time with such threshold limits as specified in the Rules shall within one
hundred and eighty days of the commencement of every financial year appoint a cost auditor.
Provided, before such appointment is made, the written consent of the cost auditor to such
appointment, and a certificate from him shall be obtained.

The cost auditor appointed under sub-rule (1) shall submit a certificate that

(a) the individual or the firm, as the case may be, is eligible for appointment and is not
disqualified for appointment under the Act, the Cost and Works Accountants Act,
1959(23 of 1959) and the rules or regulations made thereunder;
(b) the individual or the firm, as the case may be, satisfies the criteria provided in section 141
of the Act, so far as may be applicable;
(c) the proposed appointment is within the limits laid down by or under the authority of the
Act; and
(d) the list of proceedings against the cost auditor or audit firm or any partner of the audit
firm pending with respect to professional matters of conduct, as disclosed in the
certificate, is true and correct.

The company shall inform the cost auditor concerned of his or its appointment as such and file a
notice of such appointment with the Central Government within a period of thirty days of the
Board meeting in which such appointment is made or within a period of one hundred and eighty
days of the commencement of the financial year, whichever is earlier, through electronic mode,
in form CRA-2, alongwith the fee as specified in Companies (Registration Offices and Fees)
Rules, 2014.

Further every cost auditor appointed as such shall continue in such capacity till the expiry of one
hundred and eighty days from the closure of the financial year or till he submits the cost audit
report, for the financial year for which he has been appointed. Provided that the cost auditor
appointed under these rules may be removed from his office before the expiry of his term,
through a board resolution after giving a reasonable opportunity of being heard to the Cost
Auditor and recording the reasons for such removal in writing. Further the Form CRA-2 to be
filed with the Central Government for intimating appointment of another cost auditor shall
enclose the relevant Board Resolution to the effect. It may be noted that nothing contained in this

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sub-rule (3) of Rule 6 shall prejudice the right of the cost auditor to resign from such office of
the company.

Any casual vacancy in the office of a cost auditor, whether due to resignation, death or removal
shall be filled by the Board of Directors within thirty days of occurrence of such vacancy and the
company shall inform the Central Government in Form CRA-2 within thirty days of such
appointment of cost auditor.

The cost statements, including other statements to be annexed to the cost audit report, shall be
approved by the Board of Directors before they are signed on behalf of the Board by any of the
director authorised by the Board, for submission to the cost auditor to report thereon. The cost
auditor, who conducts an audit of the cost records of a company, shall submit the cost audit
report along with his or its reservations or qualifications or observations or suggestions, if any, in
form CRA-3.

Every cost auditor shall forward his duly signed report to the Board of Directors of the company
within a period of one hundred and eighty days from the closure of the financial year to which
the report relates and the Board of Directors shall consider and examine such report, particularly
any reservation or qualification contained therein.
Every company covered under these rules shall, within a period of thirty days from the date of
receipt of a copy of the cost audit report, furnish the Central Government with such report
alongwith full information and explanation on every reservation or qualification contained
therein, in Form CRA-4 in Extensible Business Reporting Language format in the manner as
specified in the Companies (Filing of Documents and Forms in Extensible Business Reporting
language) Rules, 2015 alongwith fees specified in the Companies (Registration ,Offices and
Fees) Rules, 2014.

The provisions of section 143(12) of the Companies Act, 2013 and the relevant rules made
thereunder shall apply mutatis mutandis to a cost auditor during performance of his functions
under section 148 of the Companies Act, 2013 and the Companies (Cost Records and Audit)
Rules, 2014.

Exemptions

The requirement of Cost Audit is not applicable for the following categories of companies even
if they are covered under applicable class of companies:
whose revenue from exports, in foreign exchange, exceeds 75 per cent of its total
revenue or
which is operating from a special economic zone
which is engaged in generation of electricity for captive consumption through Captive
Generating Plant. For this purpose, the term Captive Generating Plant shall have the
same meaning as assigned in rule 3 of the Electricity Rules, 2005

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 APPOINTMENT AND REMUNERATION OF COST AUDITOR
The companies covered under the Cost audit category shall within 180 days of the
commencement of every financial year, appoint a cost auditor at remuneration to be determined
in accordance with provisions of section 148(3) of the Companies Act, 2013 and rules made
thereunder.

COST AUDIT REPORT

Cost Audit Report means the duly signed cost auditors report on the cost records examined and
cost statements which are prepared as per these rules, including attachment, annexure,
qualifications or observations attached with or included in such report.

Every cost auditor, who conducts an audit of the cost records of a company, shall submit the cost
audit report along with his or its reservations or qualifications or observations or suggestions, if
any, in Form CRA-3.

Every cost auditor shall forward his duly signed report to the Board of Directors of the company
within a period of 180 days from the closure of the financial year to which the report relates and
the Board of Directors shall consider and examine such report, particularly any reservation or
qualification contained therein

Every company covered under the companies (cost record and audit) Rules, 2014, shall, within a
period of 30 days from the date of receipt of a copy of the cost audit report, furnish the Central
Government with such report alongwith full information and explanation on every reservation or
qualification contained therein, in Form CRA-4 in Extensible Business Reporting Language
format in the manner as specified in the Companies (Filing of Documents and Forms in
Extensible Business Reporting language) Rules, 2015 alongwith fees specified in the Companies
(Registration Offices and Fees) Rules, 2014.

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