Audit of Cost Accounts in Certain Cases (Section 233 B)
The Section 233(B) of the Companies Act, 1956 provides that where in the opinion of the Central
Government it is necessary so to do in relation to any company required under clause (d) of the
sub-Section (1) of Section 209 to include in its books of account the particulars referred to therein,
the Central Government may, by order direct that an audit of cost accounts of the company shall
be conducted in such manner as may be specifi ed in the order by an auditor who shall be a cost
accountant within the meaning of the Cost and Works Accountants Act, 1959.
Section 233B(2) provides that the auditor under Section 233B shall be appointed by the Board
of directors of the company in accordance with the provisions of sub-Section (1B) of Section 224
and with the previous approval of the Central Government. It further provides that before the
appointment of any auditor is made by the Board, a written certifi cate shall be obtained by the
Board from the auditor proposed to be so appointed to the effect that the appointment, if made, will
be in accordance with the provisions of sub-Section (1B) of Section 224.
Section 233B(3) provides that the audit conducted by the auditor under this Section (cost audit by
Cost Accountant) shall be in addition to an audit conducted by an auditor appointed under Section
224 (Financial Audit by Chartered Accountant).
Section 233B(4) provides that a cost auditor shall have the same powers and duties in relation to
an audit conducted by him under this Section as an auditor of a company has under sub-Section
(1) of Section 227 (fi nancial audit) and such (cost) auditor shall make his report to the Central
Government in such form and within such time as may be prescribed and shall also at the same
time forward a copy of the report to the company.
Section 233B(5)(a) provides that a person referred to in sub-Section (3) or sub-Section (4) of the
Section 226 shall not be appointed or re-appointed for conducting the audit of the cost accounts of a
company. Section 226 of the Companies Act provides qualifi cations and disqualifi cations of auditors.
Sub para (3) of the said Section provides that the following are not qualifi ed for appointment as
Auditor of a company:
(a) a body corporate;
an offi cer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an offi cer or employee of the
company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees or
who has given any guarantee or provided any security in connection with the indebtedness
of any third person to the company for an amount exceeding one thousand rupees;
(e) a person holding any security of that company after a period of one year from the date of
commencement of the Companies (Amendment) Act, 2000. (Explanation: “security” means
an instrument which carries voting rights);
(f) The sub-Section (4) of Section 226 provides that a person shall also not be qualifi ed for
appointment as auditor of a company if he is, by virtue of sub-Section (3), disqualifi ed for
appointment as auditor of any other body corporate which is that company’s subsidiary
or holding company or a subsidiary of that company’s holding company, or would be so
disqualifi ed if the body corporate were a company. In other words, if a person is disqualifi ed
under any of the aforesaid classes from being appointed as an auditor of any company or
body corporate, he cannot be appointed as auditor of its holding company, subsidiary or ‘cosubsidiary’;
and
(g) A person, who is in full time employment elsewhere.
Sub Para (4) of Section 226 provides that if anybody is disqualifi ed for being appointed
as auditor under Section 137, he cannot be appointed as auditor for its holding company,
subsidiary or ‘co-subsidiary’.
Section 233B(5)(b) provides that a person appointed under Section 224 as an auditor of a company
shall not be appointed or re-appointed for conducting the audit of the cost accounts of that
company.
Section 233B(5)(c) provides that if a person, appointed for conducting the audit of cost accounts of
a company, becomes after his appointment, to any of the disqualifi cations specifi ed in clause 5(a) or
5(b) above, he shall on and from the date on which he becomes disqualifi ed, shall cease to conduct
the audit of the cost accounts of the company.
1.2.2.8 Section 233B(6) provides that upon receipt of an order under Section 233B(1), it shall be the duty of
the company to give all facilities and assistance to the person appointed for conducting the audit of
the cost accounts of the company.
Section 233B(7) provides that the company shall, within thirty days from the receipt of a copy of
the report referred to in Section 233B(4), furnish the Central Government with full information and
explanations on every reservation or qualifi cation contained in such report.
Section 233B(8) provides that if, after considering the report referred to in Section 233B(4) and
the information and explanations furnished by the company under Section 233B(7), the Central
Government is of opinion that any further information or explanation is necessary, the Government
may call for such further information and explanation and thereupon the company shall furnish
the same within such time as may be specifi ed by that Government.
Section 233B(10) provides that the Central Government may direct the company whose cost
accounts have been audited under this Section to circulate to its members, along with the notice
of the annual general meeting to be held for the fi rst time after the submission of such report, the
whole or such portion of the said report as it may specify in this behalf.
Section 233B(11) provides that if default is made in complying with the provisions of this Section,
the company shall be liable to be punished with fi ne which may extend to fi fty thousand rupees and
every offi cer of the company who is in default, shall be liable to be punished with imprisonment for
a term which may extend to three years, or with fi ne which may extend to fi fty thousand rupees or
with both.
Based on the aforesaid provisions, the main features of the Cost Audit Section 233(B) are now
summarized as under:
(a) Cost audit is to be conducted only when the Central Government directs such an audit. [Sec.
233B(1)]
(b) The auditor for this purpose is to be appointed by the Board of Directors, with the previous
approval of the Central Government. [Sec. 233B(2)]
(c) Cost audit is in addition to fi nancial audit, which is conducted by an auditor (fi nancial auditor)
under Sec. 224. [Sec. 233B(3)]
(d) The cost auditor has same powers as fi nancial auditor has, under Sec. 227 (1). The cost auditor
is to submit his report to the Central Government, in the form and within the time prescribed,
with a copy to the company. [Sec. 233B(4)].
(e) Persons referred to in sub-Section (3) or sub-section (4) of Section 226 shall not be appointed
or re-appointed as cost auditor of the company. Similarly a person appointed under Section
224 (Financial Auditor) also cannot be appointed as the cost auditor of the company. [Sec.
233B(5)].
(f) It is the duty of the company to give all facilities and assistance to the cost auditor. [Sec.
233B(6)].
(g) The company shall within thirty days from the date of receipt of a copy of the report, furnish
to the Central Government with full information and explanation on every reservation or
qualifi cation contained in the report. [Sec. 233B(7)].
(h) The Central Government may call from the company further details which shall be provided
within the specifi ed time. [Sec. 233B(8)].
(i) The Central Government may take appropriate action on the report as it may consider
necessary. [Sec. 233B(9)].
(j) The Central Government may direct the company to circulate to its members whole or part
of the report with the notice of AGM to be held for the fi rst time after the submission of the
report. [Sec. 233B(10)].
(k) Penal action is for default in complying with the provisions of this Section. The company
liable to fi ne extending to Rs. 50,000/- and every offi cer of the company who is in default shall
be liable to be punished with imprisonment for a term which may extend to three years, or
with fi ne which may extend to Rs. 50,000/- or with both.
The Section 233(B) of the Companies Act, 1956 provides that where in the opinion of the Central
Government it is necessary so to do in relation to any company required under clause (d) of the
sub-Section (1) of Section 209 to include in its books of account the particulars referred to therein,
the Central Government may, by order direct that an audit of cost accounts of the company shall
be conducted in such manner as may be specifi ed in the order by an auditor who shall be a cost
accountant within the meaning of the Cost and Works Accountants Act, 1959.
Section 233B(2) provides that the auditor under Section 233B shall be appointed by the Board
of directors of the company in accordance with the provisions of sub-Section (1B) of Section 224
and with the previous approval of the Central Government. It further provides that before the
appointment of any auditor is made by the Board, a written certifi cate shall be obtained by the
Board from the auditor proposed to be so appointed to the effect that the appointment, if made, will
be in accordance with the provisions of sub-Section (1B) of Section 224.
Section 233B(3) provides that the audit conducted by the auditor under this Section (cost audit by
Cost Accountant) shall be in addition to an audit conducted by an auditor appointed under Section
224 (Financial Audit by Chartered Accountant).
Section 233B(4) provides that a cost auditor shall have the same powers and duties in relation to
an audit conducted by him under this Section as an auditor of a company has under sub-Section
(1) of Section 227 (fi nancial audit) and such (cost) auditor shall make his report to the Central
Government in such form and within such time as may be prescribed and shall also at the same
time forward a copy of the report to the company.
Section 233B(5)(a) provides that a person referred to in sub-Section (3) or sub-Section (4) of the
Section 226 shall not be appointed or re-appointed for conducting the audit of the cost accounts of a
company. Section 226 of the Companies Act provides qualifi cations and disqualifi cations of auditors.
Sub para (3) of the said Section provides that the following are not qualifi ed for appointment as
Auditor of a company:
(a) a body corporate;
an offi cer or employee of the company;
(c) a person who is a partner, or who is in the employment, of an offi cer or employee of the
company;
(d) a person who is indebted to the company for an amount exceeding one thousand rupees or
who has given any guarantee or provided any security in connection with the indebtedness
of any third person to the company for an amount exceeding one thousand rupees;
(e) a person holding any security of that company after a period of one year from the date of
commencement of the Companies (Amendment) Act, 2000. (Explanation: “security” means
an instrument which carries voting rights);
(f) The sub-Section (4) of Section 226 provides that a person shall also not be qualifi ed for
appointment as auditor of a company if he is, by virtue of sub-Section (3), disqualifi ed for
appointment as auditor of any other body corporate which is that company’s subsidiary
or holding company or a subsidiary of that company’s holding company, or would be so
disqualifi ed if the body corporate were a company. In other words, if a person is disqualifi ed
under any of the aforesaid classes from being appointed as an auditor of any company or
body corporate, he cannot be appointed as auditor of its holding company, subsidiary or ‘cosubsidiary’;
and
(g) A person, who is in full time employment elsewhere.
Sub Para (4) of Section 226 provides that if anybody is disqualifi ed for being appointed
as auditor under Section 137, he cannot be appointed as auditor for its holding company,
subsidiary or ‘co-subsidiary’.
Section 233B(5)(b) provides that a person appointed under Section 224 as an auditor of a company
shall not be appointed or re-appointed for conducting the audit of the cost accounts of that
company.
Section 233B(5)(c) provides that if a person, appointed for conducting the audit of cost accounts of
a company, becomes after his appointment, to any of the disqualifi cations specifi ed in clause 5(a) or
5(b) above, he shall on and from the date on which he becomes disqualifi ed, shall cease to conduct
the audit of the cost accounts of the company.
1.2.2.8 Section 233B(6) provides that upon receipt of an order under Section 233B(1), it shall be the duty of
the company to give all facilities and assistance to the person appointed for conducting the audit of
the cost accounts of the company.
Section 233B(7) provides that the company shall, within thirty days from the receipt of a copy of
the report referred to in Section 233B(4), furnish the Central Government with full information and
explanations on every reservation or qualifi cation contained in such report.
Section 233B(8) provides that if, after considering the report referred to in Section 233B(4) and
the information and explanations furnished by the company under Section 233B(7), the Central
Government is of opinion that any further information or explanation is necessary, the Government
may call for such further information and explanation and thereupon the company shall furnish
the same within such time as may be specifi ed by that Government.
Section 233B(10) provides that the Central Government may direct the company whose cost
accounts have been audited under this Section to circulate to its members, along with the notice
of the annual general meeting to be held for the fi rst time after the submission of such report, the
whole or such portion of the said report as it may specify in this behalf.
Section 233B(11) provides that if default is made in complying with the provisions of this Section,
the company shall be liable to be punished with fi ne which may extend to fi fty thousand rupees and
every offi cer of the company who is in default, shall be liable to be punished with imprisonment for
a term which may extend to three years, or with fi ne which may extend to fi fty thousand rupees or
with both.
Based on the aforesaid provisions, the main features of the Cost Audit Section 233(B) are now
summarized as under:
(a) Cost audit is to be conducted only when the Central Government directs such an audit. [Sec.
233B(1)]
(b) The auditor for this purpose is to be appointed by the Board of Directors, with the previous
approval of the Central Government. [Sec. 233B(2)]
(c) Cost audit is in addition to fi nancial audit, which is conducted by an auditor (fi nancial auditor)
under Sec. 224. [Sec. 233B(3)]
(d) The cost auditor has same powers as fi nancial auditor has, under Sec. 227 (1). The cost auditor
is to submit his report to the Central Government, in the form and within the time prescribed,
with a copy to the company. [Sec. 233B(4)].
(e) Persons referred to in sub-Section (3) or sub-section (4) of Section 226 shall not be appointed
or re-appointed as cost auditor of the company. Similarly a person appointed under Section
224 (Financial Auditor) also cannot be appointed as the cost auditor of the company. [Sec.
233B(5)].
(f) It is the duty of the company to give all facilities and assistance to the cost auditor. [Sec.
233B(6)].
(g) The company shall within thirty days from the date of receipt of a copy of the report, furnish
to the Central Government with full information and explanation on every reservation or
qualifi cation contained in the report. [Sec. 233B(7)].
(h) The Central Government may call from the company further details which shall be provided
within the specifi ed time. [Sec. 233B(8)].
(i) The Central Government may take appropriate action on the report as it may consider
necessary. [Sec. 233B(9)].
(j) The Central Government may direct the company to circulate to its members whole or part
of the report with the notice of AGM to be held for the fi rst time after the submission of the
report. [Sec. 233B(10)].
(k) Penal action is for default in complying with the provisions of this Section. The company
liable to fi ne extending to Rs. 50,000/- and every offi cer of the company who is in default shall
be liable to be punished with imprisonment for a term which may extend to three years, or
with fi ne which may extend to Rs. 50,000/- or with both.
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