CMA Final · Cost and Management Audit

Basics of Cost Audit: formula sheet

Full chapter guide

Key formulas

Cost audit in one line: Cost audit = verification of cost records and cost statements + check of compliance with cost accounting principles and rules; Use this as the base of every definition answer.
Statutory link: Section 148, Companies Act, 2013 → cost records (where directed) + audit of cost records by a cost accountant in practice (where directed); Cost audit applies only to companies the Rules cover, not to every company.
Core difference: Financial audit → financial statements | Cost audit → cost records and cost statements | Management audit → management efficiency; Use the subject matter as the first point of any comparison.
Cost records (s.148(1)): Central Government order + prescribed class of companies + prescribed goods or services → cost items included in books of account; Before an order for a class of companies regulated under a special Act, the Government must consult that regulator.
Cost audit trigger (s.148(2)): Covered by s.148(1) + prescribed net worth or prescribed turnover + Government opinion that audit is necessary → order for cost audit; The limits are in the Rules. Section 148 does not state amounts.
Who audits (s.148(3)): Cost accountant appointed by the Board; remuneration determined by members as prescribed; A Section 139 auditor of the company cannot be appointed as cost auditor.
Standards (s.148(3) second proviso): Cost auditor must comply with the cost auditing standards; The standards are issued by the Institute of Cost Accountants of India with Central Government approval.
Relation to statutory audit (s.148(4)): Cost audit is in addition to the Section 143 audit; It never replaces the financial audit.
Report (s.148(5) and (6)): Cost auditor reports to the Board; company sends a copy to the Central Government within 30 days of receipt, with full information and explanation on every reservation or qualification; The 30 days run from the date the company receives a copy of the report.
Default (s.148(8)): Company and officers in default: as in s.147(1). Cost auditor in default: as in s.147(2) to (4); Quote the sub-section references only if you are sure; otherwise say the penalties follow Section 147.
Section 148(1): power to require cost records: Central Government order → class of companies → prescribed goods or services → prescribed items of cost included in books of account; The requirement arises only through an order and the Rules, not for every company.
Consultation proviso: Regulated by a special Act → Central Government must consult the regulator before the order; This explains why regulated sectors are treated separately.
Cost records versus cost audit: Cost audit applies to a subset of companies that must keep cost records (Section 148(2)); Audit needs the net worth or turnover criteria set out in the Rules.
Records applicability: Specified industry + thresholds prescribed in the Companies (Cost Records and Audit) Rules, 2014 met = cost records required; Section 148 does not give the thresholds. The Rules prescribe them. Verify the thresholds and how they are measured from the Rules text in your study material, or take them from the question.
Retention: Preserve cost records for the period prescribed in the Rules; Audit documentation has its own rule: SCA 102 para 6.16 says the auditor must not delete or discard audit documentation before the end of its retention period.
Who appoints: Board appoints the cost auditor; members determine remuneration (s.148(3)); Remuneration is determined by members in the prescribed manner. Do not say the general meeting appoints.
Who can be appointed: A cost accountant; not the person appointed as auditor under s.139; Section 148(3) first proviso. The word 'in practice' was removed by the 2018 amendment.
Standards to follow: Cost auditor must comply with cost auditing standards (s.148(3), second proviso); Standards are issued by the Institute of Cost Accountants of India with Central Government approval.
Relation to financial audit: Cost audit is in addition to the s.143 audit (s.148(4)); It never substitutes for the statutory audit.
Application of auditor provisions: Qualifications, disqualifications, rights, duties, obligations of auditors apply to the cost auditor so far as applicable (s.148(5)); This is the source of the cost auditor's rights and duties.
Report recipient: Cost audit report is submitted to the Board of Directors (s.148(5) proviso); Not directly to the members or the Central Government.
Company's filing duty: Furnish the report to the Central Government within 30 days of receiving a copy, with full information and explanation on every reservation or qualification (s.148(6)); The duty is on the company, not the cost auditor.
Penalty for default: Company and officers in default: s.147(1). Cost auditor in default: s.147(2) to (4) (s.148(8)); State the split between company and auditor.
Who receives the report: Cost auditor → Board of Directors (section 148(5) proviso); The auditor does not file the report with the Central Government. The company does.
Filing time limit: Last date for filing = date of receipt of copy of the cost audit report + 30 days; Section 148(6). Count from receipt of the copy, not from the year-end or the date of signing.
Content of the company's filing: Report + full information and explanation on every reservation or qualification; Filed with the Central Government, in practice in Form CRA-4. Do not send the report alone.
Further information: Central Government may call for more information; company replies within time specified (section 148(7)); The time is set by the Government, not fixed at thirty days.
Penalty for default: Company and officers in default: section 147(1). Cost auditor in default: section 147(2) to (4). Both via section 148(8); Name the section 147 sub-sections. Quote amounts only if you are sure of them.
Statutory auditor bar: Auditor appointed under section 139 cannot be appointed for cost audit (section 148(3), first proviso); Cost audit is in addition to the section 143 audit (section 148(4)).
Retention of audit file: After the final file is assembled, do not delete or discard documentation before the retention period ends (SCA 102, para 6.16); The cost auditor's file supports the report if it is queried later.
Compliance with standards: Cost audit under Section 148(3) → auditor must comply with the cost auditing standards; Second proviso to Section 148(3). Standards are issued by the Institute with the approval of the Central Government.
Audit working papers (SCA 102, para 4.6): Working papers = documents recording all audit evidence obtained during the audit; They support the work done and show the audit followed the relevant standards.
Audit programme: Programme = procedures + nature, timing and extent + responsible person + sign-off; Written before field work and updated when circumstances change.
Cost audit versus statutory audit: Section 148 audit is in addition to the audit under Section 143; Section 148(4). It does not replace the financial audit.
Who cannot be cost auditor: Auditor appointed under Section 139 cannot be appointed for the cost audit of the same company; First proviso to Section 148(3).

Quick revision

Section 148 of the Companies Act, 2013 deals with audit of items of cost for certain companies.
Under 148(1), the Central Government may direct that cost-related particulars be included in the books of account of a prescribed class of companies.
Under 148(2), it may order cost records audit for covered companies with prescribed net worth or turnover.
The cost audit is conducted by a cost accountant appointed by the Board, with remuneration determined by the members as prescribed.
A person appointed under Section 139 as the company's auditor cannot be appointed for the cost audit.
The cost auditor must comply with the cost auditing standards, issued by the Institute of Cost Accountants of India with Central Government approval.
Cost audit is in addition to the audit under Section 143.
The cost auditor's report is submitted to the Board of Directors.
The company must furnish the cost audit report to the Central Government within thirty days of receiving a copy, with full information and explanation on every reservation or qualification.
The Central Government may call for further information, which the company must furnish within the time it specifies.
On default, the company and officers face Section 147(1) punishment, and the cost auditor faces Section 147(2) to (4).
The company must give the cost auditor all assistance and facilities for auditing the cost records.

Common mistakes

Saying cost audit certifies the financial statements. Fix: Write that cost audit examines cost records and cost statements. Financial statements stay with the financial auditor.
Treating cost audit as applicable to every company. Fix: State that it applies only to companies and products covered by the Rules, and where the Government has directed it.
Quoting net worth or turnover limits as part of Section 148. Fix: Write that the Act says "as may be prescribed" and the figures are in the Cost Records and Audit Rules.
Saying every company that keeps cost records must get a cost audit. Fix: Records come from s.148(1). Audit comes from s.148(2) and needs the prescribed net worth or turnover plus a Government direction.
Treating cost records and cost audit as the same thing Fix: Write them as two steps. Section 148(1) is records. Section 148(2) is audit, for a narrower set of companies.
Quoting a threshold from memory or from Section 148 Fix: Section 148 does not state the thresholds. Take them from the Companies (Cost Records and Audit) Rules, 2014, or from the question, and keep the records test separate from the audit test.
Writing that the members appoint the cost auditor. Fix: Remember: Board appoints under s.148(3); members only determine remuneration.
Saying the cost auditor can be the same firm as the statutory auditor. Fix: The first proviso to s.148(3) bars a person appointed under s.139 from the cost audit.
Saying the cost auditor files the report with the Central Government. Fix: Write the chain: auditor to Board under section 148(5); company to Central Government under section 148(6).
Counting the thirty days from the end of the financial year or from the date the auditor signed. Fix: Count from the date the company receives a copy of the cost audit report, as the Act says.

Exam tips

For a distinguish question, draw two columns and give at least four points. It is the surest route to full marks.
In MCQs, watch for options that say cost audit certifies financial statements. That is wrong.
Always link cost audit to Section 148 and the Cost Records and Audit Rules, but give section details only if you are certain.
In case scenarios, tie each benefit to the facts given, such as wastage, pricing, or cost control.
Keep limitations in the answer. Many students skip them and lose marks.
For applicability questions, always separate the Act (power) from the Rules (thresholds). Examiners reward that clarity.
In case scenarios, check the product or service first, then net worth or turnover, then the auditor. This order mirrors the usual marking scheme.
Learn the three proviso-level points: no Section 139 auditor, compliance with cost auditing standards, and report to the Board.