Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
Cost audit under Section 148 of the Companies Act 2013 is a separate statutory regime from financial audit applicable to auto-component manufacturing as a regulated sector under the Companies (Cost Records and Audit) Rules 2014. The applicability test, CRA-1 cost records maintenance, CRA-2 cost auditor appointment, CRA-3 cost audit report, and CRA-4 XBRL filing run on a different calendar with a different scope than the statutory financial audit. Cost-audit-specific data — capacity utilisation, normal vs actual capacity, yield ratios, abnormal loss, per-product margin, related-party transfer pricing — is operational rather than financial and requires a separate data discipline at the manufacturer.
Determine cost-audit applicability annually based on turnover thresholds (₹35 crore cost records, ₹50 crore aggregate plus ₹25 crore individual product for regulated sectors). Maintain CRA-1 cost records continuously through the year — per-product cost of production, per-cost-centre overhead allocation, per-process yield, per-furnace and per-machine-line capacity utilisation, abnormal loss with cause analysis, related-party pricing. Appoint cost auditor under CRA-2 within 30 days of Board approval. Receive CRA-3 cost audit report by 180 days from FY close. File CRA-4 XBRL within 30 days of report receipt.
Annual applicability checker keyed to turnover thresholds. Product master with CETA tariff heading and regulated-sector flag. Cost-centre master per furnace, per machine line, per assembly station. Normal-capacity baseline per cost centre updated annually. Yield-standard per process updated annually. Overhead allocation matrix per cost centre. Abnormal-loss capture per process with cause taxonomy. Related-party transaction register with arm's-length pricing reference. CRA-2 appointment filing calendar. CRA-3 report receipt tracker. CRA-4 XBRL filing calendar.
An annual cost-audit applicability conclusion with documented threshold check, a CRA-1 cost records file maintained continuously through the year with per-product cost of production, per-cost-centre capacity utilisation, per-process yield variance, abnormal loss with cause, and related-party pricing. A CRA-2 appointment filing on MCA. A CRA-3 cost audit report received from the cost auditor. A CRA-4 XBRL filing on MCA. An audit-defensible trail linking the cost-audit data to the underlying production records and financial books.
A finance controller at a ₹220 crore Tier 1 auto-component manufacturer in Hosur closes the FY 2025-26 books on 5 April 2026. The statutory auditor’s fieldwork is scheduled for 20 April. A separate task waits: the cost auditor’s preliminary visit on 15 October — the start of the cost audit cycle. The CRA-1 cost records have been maintained continuously through the year. The CRA-2 cost auditor appointment was filed with MCA in July 2025 within 30 days of the Board approval. The CRA-3 cost audit report is due by 30 September 2026. The CRA-4 XBRL filing is due by 31 October 2026. None of this is financial audit. This is cost audit Section 148 auto component manufacturer India — a separate statutory regime that auto-component manufacturers must operationalise.
This guide walks the applicability test, the CRA forms, the cost-audit-specific data set, the difference from statutory audit, and a worked example on the ₹220 crore Hosur Tier 1.
Quick reference
| Item | Standard | Regulator | Code / Threshold |
|---|---|---|---|
| Cost audit statute | Section 148 of Companies Act 2013 | MCA | Mandatory |
| Rules | Companies (Cost Records and Audit) Rules 2014 | MCA | As amended |
| Regulated sector | Yes for auto-component manufacturing | MCA | Table A |
| Cost records threshold | ₹35 crore aggregate turnover | MCA | Annual |
| Cost audit threshold (regulated) | ₹50 crore aggregate plus ₹25 crore individual product | MCA | Annual |
| Cost records form | CRA-1 | MCA | Maintenance |
| Cost auditor appointment form | CRA-2 | MCA | 30 days from Board |
| Cost audit report form | CRA-3 | MCA | 180 days from FY close |
| XBRL filing form | CRA-4 | MCA | 30 days from report |
| Eligible professional | Cost Accountant in practice (ICMAI) | ICMAI | Certificate of Practice required |
| Tax overlay TDS | Section 393(1)(a) code 1002 on job-work | CBDT | 1% / 2% |
| Tax overlay TCS | Section 394 code 1071 on scrap sales | CBDT | 1% from 1 April 2026 |
Is auto-component manufacturing a regulated sector for cost audit?
Yes. The Companies (Cost Records and Audit) Rules 2014, in the Table A regulated sector list, includes engineering machinery and turbo generators, and various other categories that span auto-component manufacturing through the CETA tariff headings under Chapter 87 (motor vehicles and parts) and material-specific chapters where the auto-component is classified. The regulated sector flag triggers the lower turnover thresholds — ₹50 crore aggregate plus ₹25 crore per product — compared to non-regulated sectors at ₹100 crore aggregate.
In practice every Tier 1 above ₹50 crore turnover supplying parts classified under Chapter 87 or its component-specific chapters operates under the regulated cost audit regime. The applicability conclusion is documented annually based on the turnover check and the product mix.
What does CRA-1 require?
CRA-1 specifies the form and content of cost records. The auto-component manufacturer maintains the following continuously through the year:
Per-product cost of production. Direct material consumption per unit (LME-linked aluminium, JPC-linked steel, copper, polymer granules) with the basis of valuation. Direct labour per unit. Variable production overhead per unit. Fixed production overhead per unit at the normal-capacity absorption rate. Each layer is supported by a working showing the per-unit cost build-up.
Per-cost-centre capacity utilisation. Installed capacity, normal capacity, actual production, idle capacity hours and reasons. For a casting Tier 1 this is per furnace; for a stamping Tier 1 this is per press line; for a machining Tier 1 this is per machine cell.
Per-process yield. Stamping coil-to-parts yield ratio with standard yield and actual yield variance. Forging billet-to-parts yield ratio. Casting melt-to-good-casting yield ratio. Machining stock removal yield. Each yield variance is supported by a cause analysis — abnormal losses identified.
Overhead allocation matrix. Allocation basis per cost centre (machine-hour, labour-hour, units produced), with the per-unit absorption rate computed monthly and the variance against budget.
Abnormal loss per process. Stamping skeleton scrap above standard, forging flash above standard, casting rejection above standard, machining swarf above standard, with the cause taxonomy (die wear, charging error, material defect, operator error).
Related-party transactions. Inter-unit transfers, group-company transactions, with arm’s-length pricing reference for transfer-pricing defensibility.
The CRA-1 records form the data set the cost auditor examines.
Who can be cost auditor?
Only a Cost Accountant in practice — a member of the Institute of Cost Accountants of India (ICMAI) holding a Certificate of Practice — can be appointed. The cost auditor cannot be the statutory financial auditor of the same company. The appointment is made by the Board on the recommendation of the Audit Committee. The CRA-2 e-form is filed with MCA within 30 days of Board approval.
The cost auditor conducts the audit between September and February of the following financial year (typical practice). The CRA-3 cost audit report is signed within 180 days of FY close. The company files the CRA-4 XBRL with MCA within 30 days of receipt of the report.
How does cost audit differ from statutory financial audit?
The two regimes share underlying data — raw material consumption, labour wages, overhead — but report different views:
| Dimension | Statutory financial audit | Cost audit |
|---|---|---|
| Statute | Section 143 of Companies Act | Section 148 of Companies Act |
| Standard | SA 200 to 720 (ICAI) | Cost Auditing Standards (ICMAI) |
| Eligible auditor | Chartered Accountant in practice | Cost Accountant in practice |
| Scope | Truth and fairness of financial statements | Cost of production, capacity, yield, margin |
| Reporting framework | Ind AS or Indian GAAP | CRA-1 cost records, CRA-3 report |
| Calendar | Fieldwork April to August, report by 30 September | Fieldwork October to February, report by 30 September following year |
| Output | Audit report on financial statements | CRA-3 cost audit report and CRA-4 XBRL filing |
| Audience | Shareholders, regulators, market | MCA, internal management, competition / transfer-pricing defence |
The cost audit findings feed into pricing decisions, transfer pricing for related-party transactions, competition-law defensibility, and management cost control. They are operational not financial.
Three-Way Match Exception Cost Calculator
Quantify the dispatch-to-GRN-to-invoice cost exception exposure that surfaces as abnormal loss in the cost audit — sized to your Tier 1 production volume.
Open the Three-Way Match Exception Cost Calculator →Worked example: ₹220 crore Hosur Tier 1 cost-audit cycle
A ₹220 crore Tier 1 in Hosur supplying machined castings to Tata Motors, Mahindra, and Ashok Leyland. FY 2025-26 turnover ₹220 crore. Top three products each cross the ₹25 crore individual threshold. The regulated-sector applicability check at the start of FY 2025-26 confirms cost audit is mandatory.
CRA-2 appointment (July 2025)
The Board on its 12 July 2025 meeting approves the appointment of M/s ABC Cost & Management Consultants — a Cost Accountant firm in practice — as cost auditor for FY 2025-26. The CRA-2 e-form is filed with MCA on 5 August 2025.
CRA-1 maintenance (continuous through FY 2025-26)
The finance team maintains CRA-1 records monthly. Sample month-end snapshot for January 2026:
| Item | Value |
|---|---|
| Total production (tonnes) | 312 |
| Installed capacity (tonnes) | 380 |
| Normal capacity (tonnes) | 340 |
| Capacity utilisation (actual / normal) | 91.8% |
| Casting melt input (tonnes) | 386 |
| Good casting output (tonnes) | 312 |
| Standard yield | 82% |
| Actual yield | 80.8% |
| Abnormal yield loss | 1.2% (4.6 tonnes) |
| Direct material cost per tonne (aluminium ingot) | ₹2,18,000 |
| Direct labour cost per tonne | ₹6,400 |
| Variable overhead per tonne | ₹4,200 |
| Fixed overhead per tonne (normal capacity basis) | ₹8,600 |
| Cost of production per tonne | ₹2,37,200 |
| Related-party transfer transactions | ₹1.2 crore (to group company X) |
| Arm’s-length pricing reference | ₹2,42,000 per tonne (Q3 FY 2025-26 average) |
Cost audit fieldwork (October 2025 to February 2026)
The cost auditor visits in October 2025 for a preliminary review, in November and December for the substantive procedures, and in January and February 2026 for the cost-records examination per product. Probe areas:
- Per-product cost of production reconciliation to financial books — the cost layer per tonne tied to the inventory valuation and the COGS in the P&L.
- Capacity utilisation per furnace — 91.8% in January is healthy; the previous quarter showed three months of 76% to 81% utilisation that the cost auditor probes for the fixed-overhead absorption shortfall (the unabsorbed ₹65 lakh expensed to P&L, not capitalised — confirmed under Ind AS 2 paragraph 13).
- Yield variance per process — the 1.2% abnormal yield loss in January is investigated as a charging-error in the furnace, corrected in February. The annual abnormal loss is ₹2.8 crore expensed to P&L.
- Overhead allocation matrix — verified per cost centre against the documented allocation basis.
- Related-party pricing — the ₹1.2 crore inter-unit transfer at the average market rate is consistent with arm’s-length pricing for transfer-pricing defensibility.
CRA-3 cost audit report (signed 25 September 2026)
The cost auditor signs the CRA-3 report on 25 September 2026. The report covers per-product cost of production, capacity utilisation, yield variance, abnormal loss, overhead allocation, related-party pricing, and a Reconciliation of Profit as per Cost Records with Profit as per Financial Accounts.
CRA-4 XBRL filing (filed 24 October 2026)
The company files the CRA-4 XBRL with MCA on 24 October 2026, within the 30-day window from receipt of the CRA-3 report.
Tax overlay specifics
Cost audit and the new TDS / TCS framework are operationally connected at three points:
- Section 393(1)(a) code 1002 deductions on job-work charges paid to heat-treatment, plating, machining sub-vendors enter the cost-of-production build-up. The cost audit probes the reasonableness of the rate (1% or 2% based on vendor type) and the consistency with the financial books.
- Section 394 code 1071 collection on scrap sales from 1 April 2026 affects the abnormal-loss-to-scrap-recovery reconciliation. The cost audit verifies the linkage from abnormal yield loss to scrap output to scrap-sale revenue to TCS deposit.
- The Form 26AS three-way match on TDS receivable from OEM customers — relevant for transfer-pricing defence where the OEM is a related party.
The MCA’s official text of Section 148 and the Companies (Cost Records and Audit) Rules 2014 are the authoritative reference. The CBDT new-framework codes are the applicable tax overlay.