CARO's clause 3(vi) requires the auditor to report whether cost records have been made and maintained as specified by the Central Government under Section 148 of the Companies Act, where applicable to the company's business. The clause only bites where the Companies (Cost Records and Audit) Rules actually apply to the company — determined by the industry it operates in (specified regulated and non-regulated sectors) and its turnover crossing the prescribed threshold — so the real first step is confirming applicability, not jumping straight to reviewing whether cost records exist.
The applicability test, in order
- 01Check whether the company's sector appears in the prescribed listThe Cost Records Rules specify particular industries (certain regulated sectors like telecom, electricity, petroleum; and specified non-regulated sectors like steel, cement, pharmaceuticals) — a company outside these lists is not covered, regardless of size.
- 02Check the turnover threshold for the relevant categoryEven within a covered sector, maintenance of cost records (and separately, cost audit) typically only kicks in above specified aggregate turnover thresholds set out in the rules — confirm against the company's actual turnover for the relevant year, not an assumption carried forward from a prior period.
- 03If applicable, confirm whether cost records alone or a full cost audit is requiredMaintaining cost records and being subject to a separate cost audit are two different, sequential thresholds — a company can be required to maintain records without yet crossing the higher threshold that triggers a mandatory cost audit.
Common practice, not a requirement
Most non-regulated-sector companies, even reasonably large ones, fall outside the specific industry list the Cost Records Rules name — the clause response for the large majority of statutory audits is simply that the provisions are not applicable, and that conclusion itself needs to be reached through a documented applicability check, not just an assumption that "this probably doesn't apply to us."
Where the clause is actually applicable
| Check | What it looks for |
|---|---|
| Existence of a cost accounting system | Whether the company has a system capturing cost data by product/service, not just financial accounting records repurposed informally |
| Compliance with the prescribed format | The Cost Records Rules specify the particulars records must capture — a general costing exercise that doesn't follow the prescribed structure may not satisfy the requirement |
| Whether a cost audit (if separately required) was actually conducted and the report filed | A distinct, further step beyond maintaining the records themselves |
CARO's clause 3(vi) is explicitly limited to reporting on whether cost records have been made and maintained — it does not require the statutory auditor to express an opinion on the accuracy or adequacy of the cost figures themselves, which is the separate cost auditor's responsibility where a cost audit is required.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- CARO & Companies ActCARO 2020 reporting checklist for statutory auditorsThe topic areas CARO reporting covers, what evidence each one needs, and how the clauses fit together across the audit file.
- CARO & Companies ActSecretarial compliance checklist for a statutory auditorBoard meeting frequency, statutory registers and ROC filing timeliness, read as evidence of compliance culture rather than a secretarial checklist in its own right.
- Audit data & extractsReviewing a client's chart of accounts before the auditSuspense ledgers with material balances, similar expenses grouped three different ways: the structural problems in a chart of accounts that are far cheaper to fix before year-end close than after.
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