Procedure for Appointment of Cost Auditor

Procedure for Appointment of Cost Auditor:-


The sub-Section (2) of Section 233B provides that the cost auditor 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.

The cost audit order issued by the Cost Audit Branch under Section 233B of the Companies Act,
1956 normally provides that ‘the application for the proposal for appointment of Cost Auditor for
ONE TERM should be sent to this Department within forty-fi ve days of the date of this order’. It also
further provides that ‘thereafter the application for the proposal for appointment of Cost Auditor
should be sent to this Department within 45 days of the commencement of every fi nancial year’.
The fees payable for such application and the manner in which it is to be paid are also specifi ed in
that order. These forms are now e-fi led. All the relevant information and guidelines in this regard
is available on the MCA portal www.mca.gov.in .

The cost audit orders issued, normally also state that a fi rm of cost accountants, whether proprietary
or partnership, may be proposed, if such fi rm is constituted under regulations 108 and 113 of the
Cost and Works Accountants Regulations, prescribed under the Cost and Works Accountants Act,
1959. Therefore on receipt of cost audit order by the company, the Board of Directors should select
a cost accountant or a fi rm of cost accountants qualifi ed to conduct the cost audit. The concurrence
of the cost auditor is also obtained (Section 224(1B)) prior to passing the resolution. The Board
of Directors then passes a resolution either at a meeting or through circulation appointing a cost
auditor, subject to the approval of the Central Government.

The Board resolution normally authorizes the Secretary of the Company or a Director to make
necessary application to the Central Government. This application is to be e-fi led in Form 23C
(Appendix I-D) within the time limit specifi ed in the cost audit order. The application should be
accompanied by the requisite fees.

The Department of Company Affairs considers the application and accords approval of the
appointment of the cost auditor. Normally, the Central Government approves the appointment of
cost auditor unless he suffers from any disqualifi cation under Section 224(1-B) or Section 233-B(5)
of the Companies Act. The approval is communicated to the company and the copy of the approval
is sent to cost auditor by the Central Government. However, the appointment of cost auditor is
confi rmed only when the Board of Directors informs the cost auditor that he has been appointed as
the cost auditor with the approval of the Central Government.

Detailed forms/procedures relating to the appointment of the cost auditor, starting from issue of
cost audit order to the time of approval of appointment of cost auditor is accorded by the Central
Government, are given at the end of this Study Note detailed as under:
Appendix 1-A Specimen of Cost Audit Order
Appendix 1-B Format for Written Certifi cate u/s 233B(2)/224(1-B) in case of an Individual/
Firm
Appendix 1-C Specimen Board Meeting Resolution regarding Cost Auditor
Appendix 1-D Form 23-C – Application for Appointment of Cost Auditor
Appendix 1-E Approval for Appointment of Cost Auditor
Appendix 1-F Intimation to the previous Cost Auditor