Govt ushers in strict cost audit norms

In a move expected to check unfair trade practices, companies engaged in public-facing businesses like healthcare, education and construction will now have to follow a strict audit regime for their expenses as well as the cost of products and services provided by them.
The new cost audit rules would also apply to a range of other businesses such as drugs and pharma, medical devices, telecom services, power, roads and infrastructure, sugar, fertilisers, petro products, defence products and services, railways, aeronautical services, steel, edible oil, metals and minerals, as also multi-product or multi-service companies.
Within the healthcare space, the new rules would apply to companies engaged in running hospitals, diagnostic centres, clinical centres or test laboratories, among others.

The new rules, which came into effect yesterday as part of the new Companies Act, would also apply to companies engaged in education services, other than services falling under philanthropy or as part of social spending without forming part of any business.
These rules would be applicable broadly to four classes of companies including those engaged in the production of goods in strategic sectors such as machinery and mechanical appliances used in defence.
Entities engaged in an industry regulated by a sectoral regulator or a Central government ministry would also be covered. Besides companies operating in areas involving public interest such as railways and firms that are into production, import and supply or trading of certain medical devices would have to maintain cost records.

"The new rules specify four classes of companies which shall be required to maintain cost records and who will be subject to cost audit," the Corporate Affairs Ministry said.

The latest notification pertains to Companies (Cost Records and Audit) Rules, 2014 under section 148 of the Companies Act, 2013.
Within the four classes, there are different thresholds for deciding the applicability of maintaining cost records.
For entities coming under the classification of being regulated by sectoral watchdogs as well as those engaged in businesses that involve public interest, the thresholds are similar.
Firms engaged in one specific product or service would have to follow the audit rules in case their networth is Rs 150 crore or more or have a turnover of Rs 25 crore or more.

"...In the case of a multi-product or a multi services company (a company producing more than one product or service), any product or a service for which the individual turnover (from such specific product or such specific service) is rupees fifty crore or more," the ministry said in the notification.