Salient Features of the Appointment of Cost Auditorby Companies -Form 23C & Form 23D

Salient Features of the Appointment of Cost Auditorby Companies -Form 23C & Form 23D

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Ministry of Corporate Affairs (MCA), Cost Audit Branch vide General Circular No. 15/2011 dated 11th April, 2011 has introduced new procedure for Appointment of Cost Auditor by Companies.

This Circular is effective from the financial year commencing on or after 1st April, 2011.

Cost Auditor has to submit consent letter addressed to the Board of Directors of the Company(the appointing authority for Cost Auditor u/s 233B(2) of the Companies Act, 1956) as required u/s 224 (1-B) of the Companies Act, 1956. The Draft of the Consent letter is given in Appendix A.

The company has to pass a Board Resolution proposing the name of the Cost Auditor after obtaining his consent letter. Appointment of Cost Auditor shall be routed through Audit Committee, if applicable. The Draft of the Board Resolution is as per Appendix B.

The Company shall e-file Form 23C within 90 days from the commencement of each financial year with –

(i) certified copy of the Board resolution

(ii) consent letter as stated above from the proposed cost auditor, and

(iii) challan for the requisite fees.

Vide MCA Notification No. 52/26/CAB/-2010 dated 30-6-2011, para 2 – The companies covered for the first time under the automatic Cost Audit Order (for 16 Industries) & wherein their financial year has already commenced, the period of 90 days for e-filing Form 23C shall be counted from the date of these Orders (i.e. 2-5-2011 or 3-5-2011 or 30-6-2011).

Information to be submitted by the Cost Auditor to the Company for e-filing Form23C -

(i)Consent letter to be given by Cost Accountant u/s 224 (1–B)

(ii)Sr. 4(b) Income Tax PAN of Cost Auditor or Cost Auditors Firm

(iii)Sr. 4(d) Membership No. of Cost Auditor or in case of appointment of Cost Auditor in the name of partnership firm, registration no. of the firm

(iv)Sr. 4(f) email– ID of Cost Auditor or Cost Auditors Firm

(v)Sr. 4(i) Scope of audit: The company can mention the name of ‘product’, ‘location’ of the factory ‘period’ covered for Cost Audit in this para

(vi)Sr. 8(d) Whether the previous Cost Auditor has been informed of the change (Applicable in case of change of Cost Auditor)

The company should email a copy of Form 23C & its SRN to Cost Auditor. These documents will be required by the Cost Auditor for subsequent e-filing of Form 23D.

Appointment is deemed to be approved by the Central Government, unless on the contrary is heard within 30 days from the date of e-filing of Form 23C.

Company has to re-submit Form 23C, if any additional information or explanation is asked for by the MCA.

Appointment is deemed to be approved by the MCAwithin 30 days from the date of filing fresh Form 23C, with additional information or explanation.

The Company shall issue appointment letter on its letterhead to the Cost Auditor after expiry of 30 days from filing of Form 23C as stated above. The Draft of the Appointment Letter is as per Appendix C.

The Cost Auditor has to file Form 23D online with MCA within 30 days of receiving appointment letter from the company, attaching a copy of the appointment letter with the Form.

Information required by Cost Auditor from company for e–filing of Form23D –

(i)A copy of Form 23C e-filed by the company.

(ii)A copy of SRN of Form 23C.

(iii)A copy of appointment letter issued by the company to the Cost Auditor, subsequent to receipt of approval from CAB for appointment of Cost Auditor or after expiry of 30 days of e-filing of Form 23C by the company. (a copy of this letter shall be attached with Form 23D)

(iv)Under sr. 5(i) scope of audit: The Cost Auditor can mention the name of ‘product’, ‘location’ of the factory, & ‘period’covered for Cost Audit.

It is suggested that a copy of Form 23D may be emailed by the Cost Auditor to the company, as an acceptance of the Cost Audit assignment.

The Company shall disclose full particulars of the Cost Auditor along with the due date and actual date of filing of the Cost Audit Report in its Annual Report for each financial year.

It is opined that in case Annual Report is prepared much earlier than the finalization of the Cost Audit Report, the company should comply with this provision in the Annual Report published for the subsequent year, after the submission of the Cost Audit Report. This analogy is based on the requirements of Sec 233 B (10).

The Draft of the‘Disclosure about Cost Audit in the Annual Report’ of the Company is given below:

“As per the requirement of the Central Government and pursuant to Section 233B of the Companies Act, 1956, your Company carries out an audit of cost records relating to ______(Product) every year. Subject to the approval of the Central Government, the Company has appointed M/s ______& Co., Cost Accountants, as Cost Auditors to audit the cost accounts of the Company for the Financial Year 2011–12. The cost audit report for the Financial year 2009–2010 which was due to be filed with the Ministry of Corporate Affairs on September 27, 2010 was filed on August 12, 2010.”

Penalty provisions for contravention of the circular 15/2011 dated 11th April, 2011 are as per Sections - 209(5), 209(6) 209(7), 233B (11), 642(5) and 642(7) of the Companies Act, 1956.

FAQ issued by ICWAI on Appointment of Cost Auditor by Companies can also be referred to (published in Management Accountant Journal pg. 537 – 540 of June 2011 issue).

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Appendix - A

Consent Letter to be given by a Cost Accountants Firm u/s 224 (1–B)

(On the letterhead of Cost Accountants Firm)

Date:

The Board of Directors

………………

Mumbai – 400 049

Dear Sirs,

Re: Appointment of Cost Auditors for the year 2011-2012

We hereby certify that in case of our appointment as Cost Auditors for the audit of Cost Accounts maintained by the company relating to "______(Product)”for the year ending 31st March, 2012, it will be in accordance with the limits specified in sub-section (1B) of Section 224, read with sub-section (2) of Section 233B of the Companies Act, 1956.

We hereby declare that –

(i)All our partners are in full time practice as a Cost Accountant within the meaning of theCost &Works AccountantsAct 1959 (23 of1959) and holding avalid certificate of Practice.

(ii)We are not disqualified under any of the provisions specified u/s. 233B(5) read with section 224 and sub–section (3) and sub–section (4) of section 226 of the Companies Act, 1956

(iii)We are independent firm of Cost Accountants and are maintaining an arm’s length relationship with your company.

Thanking you,

Yours faithfully,

For …………. & Co.

(______)

PARTNER

No. M / ______

PAN No. of Firm– ______

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Appendix - B

Draft of Resolution of Board of Directors – For Appointment of Cost Auditors

Extract from minutes of the Board Meeting of M/s …………… Ltd. held at the ______office of the Company on ………

Secretary tabled the MCA order No.______Dt. ______ordering the Cost Audit of ______(Product) for the year ……….

The Chairman informed the Board that M/S…………. have given their consent to act as cost auditors and laid on the table the certificate received from them.

It was accordingly_____

“Resolved that, pursuant to section 233B of the Companies Act, 1956 and subject to the approval of the Central Government M/S______be and are herby appointed as the cost auditors of the company to conduct audit of …….(product) manufactured by the company at ______(location of factory) for the year ending ______at a remuneration of Rs.______plus out–of– pocket expenses.

Further resolved, that the secretary of the company be and is herby directed to submit the necessary application in Form 23C to the Central Government and to do all such other acts as may be necessary.”

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Appendix - C

Appointment letter to be issued by the Company for Appointment of Cost Auditors

ON THE LETTERHEAD OF THE COMPANY……………

Ref. No.

Date:

M/s. ……………..

Cost Accountants

………..(Address)

Sub.: Appointment of Cost Auditors for the year ………...

Dear Sirs,

We are pleased to inform you that the Board of Directors of the Company at their meeting held on ……………… have appointed your firm as the Cost Auditors of the Company to carry out the audit of the cost accounting records maintained by the Company for ……………………………. (Product) for the year ending 31st March, ……. at a remuneration of Rs. …………………….(Rupees ……………………..Only} plus reimbursement of out of pocket expenses.

Thanking You,

Yours Faithfully

For

(…………………..)

Company Secretary