Cost Records vs Cost Audit: What Growing Companies Need to Know
A company can be required to maintain cost records without being required to undergo a cost audit.
That distinction is easy to miss.
Both requirements arise from Section 148 of the Companies Act, 2013 and the Companies (Cost Records and Audit) Rules, 2014, but they operate at different levels. Before looking at the audit thresholds, a company must first determine whether its activities are covered by the Rules at all.
ICMAI currently publishes a consolidated 2025 edition of the Rules together with its technical guidance and FAQs.
Cost records and cost audit are two different obligations
Cost records are the detailed records used to identify and analyse the cost of producing goods or providing services.
Depending on the business, they may include information relating to materials, employee costs, utilities, production quantities, capacity, overheads, cost of sales and margins.
Companies covered by the Rules maintain these records in accordance with the principles prescribed in CRA-1.
Cost audit is the separate statutory examination of those cost records by an eligible Cost Accountant in practice.
A company therefore should not ask only:
“Do we need a cost audit?”
It should first ask:
“Are we required to maintain cost records?”
Step 1: Is the activity covered?
Rule 3 contains specified goods and services in two groups.
Table A — regulated sectors, such as telecommunications, electricity, petroleum products, drugs and pharmaceuticals, fertilisers, and sugar and industrial alcohol.
Table B — non-regulated sectors, covering specified manufacturing and service activities including iron and steel, cement, chemicals, textiles, electrical and mechanical machinery, health services and several other categories.
The exact statutory description and applicable tariff heading matter. A broad description such as “manufacturing company” is not enough by itself.
Step 2: Does the ₹35 crore cost-record threshold apply?
For an otherwise covered company, cost records become relevant where overall turnover from all products and services in the immediately preceding financial year reaches the Rule 3 threshold of ₹35 crore.
Micro and small enterprises are excluded from the Rules.
The MSME classification effective from 1 April 2025 uses the following limits:
| ClassificationInvestmentTurnover | ||
|---|---|---|
| Micro | Up to ₹2.5 crore | Up to ₹10 crore |
| Small | Up to ₹25 crore | Up to ₹100 crore |
| Medium | Up to ₹125 crore | Up to ₹500 crore |
Both the investment and turnover conditions for a category have to be considered, and export turnover is excluded for MSME classification purposes.
A medium enterprise is not excluded merely because it continues to fall within the wider MSME definition.
Step 3: Does cost audit also apply?
Cost audit operates at higher thresholds.
| SectorOverall turnoverAggregate turnover of products/services covered by Rule 3 | ||
|---|---|---|
| Table A | ₹50 crore or more | ₹25 crore or more |
| Table B | ₹100 crore or more | ₹35 crore or more |
These tests are in addition to the underlying Rule 3 applicability.
Example: cement manufacturer
Assume a company manufactures cement, has overall turnover of ₹60 crore and cement turnover of ₹40 crore in the preceding financial year.
Assume also that it is not a micro or small enterprise.
Cement is a Table B activity.
The company crosses the ₹35 crore cost-record threshold, so cost records are relevant.
But Table B cost audit requires overall turnover of ₹100 crore or more. At ₹60 crore, that condition is not met.
Result: cost records apply, but cost audit does not apply on these figures.
What if a company has both Table A and Table B products?
This is an important point for multi-product businesses.
ICMAI's current FAQ explains that the covered-turnover figure is the aggregate turnover of all products and services for which cost records are required under Rule 3, including products from both Table A and Table B.
It is not necessary for the turnover of each table to independently cross ₹25 crore or ₹35 crore.
ICMAI gives the example of ₹20 crore of Table A products and ₹20 crore of Table B products, with overall turnover of ₹101 crore. Aggregate covered turnover is ₹40 crore, and the FAQ concludes that products under both tables are covered by cost audit.
Consider another example:
| ActivityTurnover | |
|---|---|
| Pharmaceuticals — Table A | ₹10 crore |
| Cement — Table B | ₹30 crore |
| Other products | ₹80 crore |
| Overall turnover | ₹120 crore |
Aggregate Rule 3-covered turnover is ₹40 crore.
Under the ICMAI interpretation, the company crosses the ₹100 crore overall threshold and ₹35 crore aggregate covered-turnover threshold. Subject to the remaining conditions and exemptions, cost audit extends to the relevant Table A and Table B products.
That is why a multi-product company should reconcile its Rule 3-covered turnover before determining audit applicability.
Cost-audit exemptions also need to be considered
Rule 4 contains specific exemptions from cost audit, including qualifying export circumstances, Special Economic Zone operations and captive electricity generation.
These should not automatically be applied across an entire company without examining the underlying facts.
For example, ICMAI guidance distinguishes a qualifying captive generating plant from situations where electricity is also sold outside. It also recognises that SEZ and non-SEZ operations may need different treatment.
The important point is that an exemption from cost audit does not automatically eliminate the requirement to maintain cost records.
What happens when cost audit applies?
A company covered by cost audit must appoint its cost auditor within 180 days from the commencement of the financial year.
The appointment is intimated to the Central Government in CRA-2 within 30 days of the Board meeting in which the appointment is made, or within 180 days from commencement of the financial year, whichever is earlier.
The cost auditor submits the report in CRA-3 to the Board within 180 days from the closure of the financial year.
The company then files CRA-4 within 30 days from receipt of the cost audit report.
MCA revised CRA-2 and CRA-4 through the 2025 amendment, applicable from 14 July 2025.
Cost records should not begin with the audit
A business that waits until the cost auditor is appointed to organise its cost data is usually starting too late.
Useful cost records require regular capture and reconciliation of operating information such as material consumption and losses, production and capacity, employee and utility costs, inventory movements, overhead allocation, and product-level cost and margins.
When maintained properly, the same records can support pricing, profitability analysis, waste reduction and management decisions in addition to statutory compliance.
The practical takeaway
A company approaching ₹35 crore turnover should not wait for the audit threshold before examining cost-record applicability.
The correct sequence is:
Entity and MSME status → Covered activity → Overall turnover → Aggregate covered turnover → Cost-audit threshold → Exemptions.
That sequence avoids the common mistake of treating cost records and cost audit as the same requirement.
Primary references: Section 148 of the Companies Act, 2013; Companies (Cost Records and Audit) Rules, 2014, as amended; ICMAI consolidated Rules and FAQs on Maintenance of Cost Records and Audit thereof.
Last reviewed: 24 September 2026.