APPENDIX I Auditing Help

Companies (Audit of Cost Accounts) Rules, 1998 Statutory Notifications (S.R.O) Government of Pakistan Corporate Law Authority

Notifications (Islamabad, the 24th July, 1998)

S.R.O. 846 (1)/98, – In exercise of the powers conferred by sections 258 and 506 of the Companies Ordinance, 1984 (Xl, VII of 1984), read with the Finance Divisions Notification No. S.R.O 698 (1) 86, dated 2nd July, 1986, the Corporate Law Authority hereby makes the following rules, the same having been published previously as required by sub-section (1) of the said section 506, namely:-


1. Short title, application and commencement.

(1) These rules may be called the Companies (Audit of Cost Accounts) Rules, 1998.

(2) These rules shall apply companies or class of companies, which are required by the Corporate Law Authority through a general or special order issued under clause (c) of sub-section (1) of section 230 of the Companies Ordinance, 1984, to include in their books of account, such particulars relating to utilization of material or labour or to other inputs or items of cost, as specified in that order.

(3) They shall come into force at once.

2. Definitions. – In the rules, unless there is anything repugnant inn the subject or context.-

(a) “Appendix” means an Appendix to these rules;
(b) “company” means a company formed and registered under the Companies Ordinance. 1984 (XL VII of 1984), and to which these rules apply;
(c) “director” means a director of a company; and
(d) “cost auditor” means a cost auditor appointed under rule 3.

3. Appointment of cost auditors.

(1) Every company shall be required to get its cost accounts audited by a cost auditor who is a Chartered Accountant within the meaning of the Chartered Accountants Ordinance, 1961 (X of 1961), or a Cost and Management Act, 1966 (XIV of 1966).

(2) The cost auditor shall be appointed by the directors with the prior approval of the Corporate Law Authority within sixty days of the close of financial year of the company.

(3) The shall apply to the Corporate Law Authority in the form set out in Appendix 1 for appointment of cost auditor not later than thirty days before the date on which cost auditor is to be appointed.

(4) Name of the following persons shall be appointed as cost auditor of a company, namely:-

(a) a person who has been appointed as auditor of the company for the respective period under section 252 of the Companies Ordinance, 1984;
(b) a person who is, or at any time during the preceding three was, a director, officer of employee of the company;
(c) a person who is a partner of, or in the employment of; a director, officer or employee of the company;
(d) a spouse of a director of the company;
(e) a person who is indebted to the company; and
(f) a body corporate.


In this sub-rise reference to an “officer” or “employee” shall be construed as not including reference to a cost auditor.

(5) The remuneration of the cost auditor shall be fixed by the directors.

4. Cost auditors report.

(1) Every company shall, in addition to the records and statements specified in the order of the Corporate Law Authority issued under clause (e) of sub-section (1) of section 230 of the Companies Ordinance, 1984, prepare:

(a) a statement of production capacity of the plant, in items of machine hours and production units, the actual utilization of the capacity and the reasons of difference between the two; and
(b) a statement of stock in trade of the company as at the end of financial year in terms of quantity and cost there of distinguishing between:-

(i) stock of raw material and components;
(ii) stock of work in process;
(iii) stock of finished products; and
(iv) other stocks.

(2) The statement specified in clauses (a) and (b) of sub-rule (1) shall be signed by the chief executive and chief accountant of the company.

(3) The cost auditor shall make out a report within sixty days of his appointment to the directors in the form set out in Appendix II along with a statement of capacity utilization and stock-in-trade as specified in clauses (a) and (b) of sub-rule (1) in the form set out in Appendix III and simultaneously shall submit two copies thereof to the Corporate Law Authority and the registrar concerned.

(4) The company shall, within thirty days from the date of receipt of copy of the report, furnish the Corporate Law Authority with full information and explanation on every reservation or qualification contained in such report.

5. Penalty.

Whoever fails or refuse to comply with, or contravenes any provision of these rules, or knowingly and willfully authority or permits such failure, refusal or contravention shall, in addition to any other liability under the Companies Ordinance, 1984, he also punishable with fine not exceeding two thousand rupees and, in case of continuing failure, refusal of contravention, with a further fme not exceeding one hundred rupees for every day after the first during which such contravention continues.

Posted on November 4, 2015 in Cost Audit

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