Your statutory auditor tells you whether the company made a profit. Your cost auditor can tell you which product made it, and which one quietly ate it.
Most companies treat cost audit as one more filing: appoint the auditor, get the report, file CRA-4, move on. The report itself usually goes into a drawer. That is a waste, because it is the only statutory document that breaks your profit down product by product, using records that have to reconcile with your books. This note is about reading it as a management report, not just a compliance form.
Who it applies to and the deadlines (cost records from ₹35 crore turnover, cost audit from ₹50 crore or ₹100 crore depending on the sector, CRA-2, CRA-3 and CRA-4) are covered in our earlier note: Cost audit for FY 2025-26: who it applies to, and the deadlines. For FY 2025-26, CRA-3 was due by 27 September 2026, so most CRA-4 filings fall due in October.
Statutory audit and cost audit look at different things
| Statutory audit | Cost audit | |
|---|---|---|
| Law | Sections 139 to 147, Companies Act | Section 148 and the Cost Records and Audit Rules, 2014 |
| Who can do it | Chartered Accountant in practice | Cost Accountant in practice only. The statutory auditor cannot also be the cost auditor. |
| The question it answers | Are the financial statements true and fair? | Are the cost records proper, and what does each product actually cost? |
| Level of detail | The company as a whole | Each product or service covered by the Rules |
| Standards | Standards on Auditing | Cost Accounting Standards (CAS) and Cost Auditing Standards issued by ICMAI |
The two don't overlap; they complement each other. One tells you the total is right. The other tells you how the total was built.
What is in the cost audit report
The cost audit report (Form CRA-3) comes with an annexure that every cost auditor has to fill in. The parts management should actually read:
- Quantitative information: installed capacity, actual production, capacity utilisation and sales quantity, product by product.
- Abridged cost statement: cost per unit split into materials, utilities, employee cost, repairs, depreciation, overheads, and selling and distribution, set against net realisation per unit.
- Product and service profitability: margin earned on each covered product, and on the rest of the business taken together.
- Reconciliation with financial accounts: profit as per cost records matched to profit as per the audited books, with each difference explained.
- Value addition, financial ratios and related party transactions, including whether related party prices are at arm's length on a cost basis.
- The cost auditor's observations and suggestions. Often the most useful page, and the one least read.
Four things it can tell you
1. Which product is really making money
Financial statements show one gross margin for the company. Cost records allocate materials, power, labour and overheads to each product on a measured basis: machine hours, power consumption, labour hours. When that is done properly, the picture often changes. A product that looks profitable on a rough margin can turn out to be using far more machine time or power than its share of sales suggests.
2. How much capacity you are paying for and not using
Every plant carries fixed costs whether it runs at 50% or 90%. The report states capacity utilisation for each product. Under CAS, the cost of idle capacity is not loaded on to the product; it is shown separately as an abnormal cost. That number tells you what under-utilisation is costing you in rupees, which makes decisions on extra shifts, job work or new orders much easier.
3. Where costs are moving
The report compares the current year with the previous year, element by element. If power cost per unit went up 18% while production went down, or if the scrap rate on one line doubled, it shows up here before it shows up in the year's profit.
4. Whether your pricing covers your cost
Net realisation per unit next to cost of sales per unit is the simplest pricing check you will get. It is also what you need when a large customer asks for a rate cut, or when you quote for a government tender.
An example
Take a manufacturing company in Noida with three product lines and ₹120 crore in sales. These figures are illustrative.
| ₹ crore | Product A | Product B | Product C | Total |
|---|---|---|---|---|
| Sales | 60 | 40 | 20 | 120 |
| Variable cost (materials, power, direct labour) | 42 | 30 | 17 | 89 |
| Contribution | 18 | 10 | 3 | 31 |
| Fixed overheads, allocated on machine hours | 8 | 6 | 7 | 21 |
| Profit | 10 | 4 | (4) | 10 |
The audited accounts show a ₹10 crore profit and nothing more. The cost records show that Product C uses about a third of the machine hours for a sixth of the sales, and loses ₹4 crore after overheads.
But don't drop Product C straight away. It still earns a ₹3 crore contribution. If you stop making it and the fixed overheads stay, company profit falls from ₹10 crore to ₹7 crore. The useful questions are different: can the price go up, can the process use fewer machine hours, or can those hours be used for more of Product A? That is the kind of decision cost records are meant to support.
Making the report useful, not just filed
- Keep cost records monthly. Records rebuilt at year-end only produce numbers for the auditor. Monthly product costing gives management something to act on during the year.
- Get the allocation bases right. Overheads spread on sales value hide the real picture. Use machine hours, power units or labour hours, whichever actually drives the cost.
- Ask for a meeting with the cost auditor before the report goes to the Board. Go through the profitability statement, capacity figures and the observations.
- Track three numbers every quarter: cost per unit by product, capacity utilisation, and contribution margin by product.
- Use it in pricing and capacity decisions: rate negotiations, new orders, expansion plans and make-or-buy.
If your company keeps cost records but is below the cost audit threshold, the same discipline still pays. Many mid-sized manufacturers commission a cost review voluntarily for exactly this reason.
Our view
Compliance is the floor. Costing is the advantage. A company that keeps cost records anyway, and has a cost auditor's report every year, is sitting on product-wise information most of its competitors don't have. It costs very little more to use it.
How Vitt-Marg helps
Vitt-Marg is led by a Cost and Management Accountant, so cost audit and costing are our own field. From Sector 63, Noida, we check whether the Rules apply to each of your products, set up cost records that reconcile with your books, coordinate CRA-2, CRA-3 and CRA-4, and walk your management through what the report shows. The law keeps the two roles separate, so we work alongside your statutory auditor. Also see our note on internal audit under Section 138.
General information, current as of October 2026, not advice for a specific case. GST and income-tax rules change often — check with us before acting on it.