Ceiling on Number of Cost Audits:-
The sub-Section (2) of Section 233B inter-alia 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 224(1)(B) provides that no company or its Board of directors shall appoint or re-appoint any
person who is in full time employment elsewhere or fi rm as its auditor if such person or fi rm is, at
the date of such appointment or re-appointment, holding appointment as auditor of the specifi ed
number of companies or more than the specifi ed number of companies. The proviso to Section
224(1B) further provides that the provisions of this sub-Section shall not apply, on and after the
commencement of the Companies (Amendment) Act, 2000, to a private company.
Explanation I to the Section 224 provides that for the purposes of sub-Sections (1B) and (1C),
“specifi ed numbers” means :
(a) in case of a person or fi rm holding appointment as auditor of a number of companies each
of which has a paid-up share capital of less than rupees twenty-fi ve lakhs, twenty such
companies;
(b) in any other case, twenty companies, out of which not more than ten shall be companies each
of which has a paid-up share capital of rupees twenty-fi ve lakhs or more.
Explanation II to the Section 224 provides that in computing the specifi ed number, the number
of companies in respect of which or any part of which any person or fi rm has been appointed as
an auditor, whether singly or in combination with any other person or fi rm shall be taken into
account.
In view of aforesaid provisions, the ceilings on the number of cost audits can be clarifi ed as under:
(a) In the case of fi rm of cost accountants: Twenty companies for each such partner of the fi rm
who is not in full time employment. However, not more than ten such companies should
have a paid up share capital of Rs. 25 lakhs or more;
(b) In the case of an individual cost accountant, who is not in full time employment: Twenty
companies, out of which not more than ten should have a paid-up share capital of Rs. 25 lakhs
or more.
It can be seen from above that Section 224(1B) and Explanation I to Section 224 refers to the ceilings
for the number of companies and not to the number of cost audit orders or products. Therefore, if
more than one products of a particular company are covered under cost audit for the same year, a
cost auditor should count their number as one company only, since the audits for all the products
relate to the same company despite the fact that separate cost audit orders have been issued with
respect to each such product. Similarly, if that company appoints different cost auditors for different
products, each auditor shall count the company as one company for counting their individual
quota for number of audits.
It should be noted that the Companies (Amendment) Act, 2000 has inserted a provision (Explanation
II) to Section 224, whereby the provisions of sub-section 1-B shall not apply to a Private Company.
It means that for computing the limit on number of companies for audit, Private Companies should
not be counted.
The sub-Section (2) of Section 233B inter-alia 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 224(1)(B) provides that no company or its Board of directors shall appoint or re-appoint any
person who is in full time employment elsewhere or fi rm as its auditor if such person or fi rm is, at
the date of such appointment or re-appointment, holding appointment as auditor of the specifi ed
number of companies or more than the specifi ed number of companies. The proviso to Section
224(1B) further provides that the provisions of this sub-Section shall not apply, on and after the
commencement of the Companies (Amendment) Act, 2000, to a private company.
Explanation I to the Section 224 provides that for the purposes of sub-Sections (1B) and (1C),
“specifi ed numbers” means :
(a) in case of a person or fi rm holding appointment as auditor of a number of companies each
of which has a paid-up share capital of less than rupees twenty-fi ve lakhs, twenty such
companies;
(b) in any other case, twenty companies, out of which not more than ten shall be companies each
of which has a paid-up share capital of rupees twenty-fi ve lakhs or more.
Explanation II to the Section 224 provides that in computing the specifi ed number, the number
of companies in respect of which or any part of which any person or fi rm has been appointed as
an auditor, whether singly or in combination with any other person or fi rm shall be taken into
account.
In view of aforesaid provisions, the ceilings on the number of cost audits can be clarifi ed as under:
(a) In the case of fi rm of cost accountants: Twenty companies for each such partner of the fi rm
who is not in full time employment. However, not more than ten such companies should
have a paid up share capital of Rs. 25 lakhs or more;
(b) In the case of an individual cost accountant, who is not in full time employment: Twenty
companies, out of which not more than ten should have a paid-up share capital of Rs. 25 lakhs
or more.
It can be seen from above that Section 224(1B) and Explanation I to Section 224 refers to the ceilings
for the number of companies and not to the number of cost audit orders or products. Therefore, if
more than one products of a particular company are covered under cost audit for the same year, a
cost auditor should count their number as one company only, since the audits for all the products
relate to the same company despite the fact that separate cost audit orders have been issued with
respect to each such product. Similarly, if that company appoints different cost auditors for different
products, each auditor shall count the company as one company for counting their individual
quota for number of audits.
It should be noted that the Companies (Amendment) Act, 2000 has inserted a provision (Explanation
II) to Section 224, whereby the provisions of sub-section 1-B shall not apply to a Private Company.
It means that for computing the limit on number of companies for audit, Private Companies should
not be counted.
thanks for the information.Is there any limit for cost audits including Pvt Limited Companies. As per ICAI ( Chartered ) notification it is 30 companies including pvt ltd., companies.
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