Provision for Cost Audit

Provision for Cost Audit

Section 233B was inserted by section 23 of the Companies (Amendment) Act, 1965, in order to enable
Government to issue necessary directions for conducting cost audit of companies engaged in
production, processing, manufacturing or mining activities. The Notes on clauses stated that the purpose
of the section was to “enable Government to issue necessary directions for conducting cost audit of
companies engaged in production, processing, manufacturing or mining activities” (clause 24).
Section 233B of the Companies Act 1956:
(1) Where in the opinion of the Central Government it is necessary so to do in relation to any company
required under clause (d) of 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 specified in the order by
an auditor who shall be a cost accountant within the meaning of the Cost and Works Accounts
Act, 1959 (23 of 1950):
Provided that if Central Government is of opinion that sufficient number of cost accountants
within the meaning of the Cost and Works Accountants Act, 1959 (23 of 1959), are not available
for conducting the audit of the cost accounts of companies generally, that Government may,
by notification in the Official Gazette, direct that, for such period as may be specified in the said
notification, such chartered accountant within the meaning of the Chartered Accountants Act,
1949 (38 of 1949), as possesses the prescribed qualifications, may also conduct the audit of the
cost accounts of companies, and thereupon a chartered accountant possessing the prescribed
qualifications may be appointed to audit the cost accounts of the company.
(2) The auditor under this section 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 : Provided that before the appointment of any auditor is made by the
Board, a written certificate 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.
(3) An audit conducted by an auditor under this section shall be in addition to an audit conducted
by an auditor appointed under section 224.
(4) An 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 and such auditor
shall make his report to the Central Government in such form 498 and within such time as may be
prescribed and shall also at the same time forward a copy of the report to the company.
(5) (a) A person referred to in sub-section (3) or sub-section (4) of section 226 shall not be appointed
or re-appointed for conducting the audit of the cost accounts of a company.
(b) 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.
(c) If a person, appointed for conducting the audit of cost accounts of a company, becomes
subject, after his appointment, to any of the disqualifications specified in clause (a) or clause
(b) of this sub-section, he shall, on and from the date on which he becomes so subject, cease
to conduct the audit of the cost accounts of the company.
(6) Upon receipt of an order under sub-section (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.
(7) The company shall, within thirty days from the date of receipt of a copy of the report referred to
in sub-section (4), furnish the Central Government with full information and explanations on every
reservation or qualification contained in such report.
(8) If, after considering the report referred to in sub-section (4) and the information and explanations
furnished by the company under sub-section (7), the Central Government is of opinion that any
further information or explanation is necessary, that Government may call for such further information
and explanation and thereupon the company shall furnish the same within such time as may be
specified by the Government.
(9) On receipt of the report referred to in sub-section (4) and the in formations and explanations
furnished by the company under sub-section (7) and sub-section (8), the Central Government may
take such action on the report, in accordance with the provisions of this Act or any other law for
the time being in force, as it may consider necessary.
(10) 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 first time after the submission of such report, the whole or such portion of the said
report as it may specify in this behalf.
(11) If default is made in complying with the provisions of this section, the company shall be liable to be
punished with fine which may extend to five thousand rupees, and every officer 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 the fine which may extend to five thousand rupees, or with both.