Cost Audit Programme: formula sheet

Key formulas

Overall audit strategy (SCA 103, para 4.13)

Overall audit strategy = scope + timing + direction of the audit; it guides the detailed audit plan

The programme sits below the strategy and plan, and turns them into specific procedures.

Definition of audit (SCA 103, para 4.1)

Audit = independent examination of financial, cost and other related information, to express an opinion

Applies to any entity, profit oriented or not, irrespective of size or legal form.

Cost auditor (SCA 103, para 4.8)

Cost auditor = a cost accountant (Cost and Works Accountants Act, 1959) holding a valid certificate of practice, including a firm of cost accountants

The auditor is appointed to audit cost records.

Auditor's duties in SCA 103

Para 5.3: understand the entire standard | Para 5.8: use professional judgment | Para 5.11: if an objective is not achieved, evaluate effect and consider modifying the opinion

Use these paragraph numbers when linking the programme to SCA 103.

Effective date (SCA 103, para 7)

Effective for audits on or after 11 September 2015

A frequent one-line MCQ fact.

Agreeing the terms (para 5.4)

Cost auditor agrees the terms of the engagement with management

The counterparty is management. Governance structure and law decide how management's role works (para 6.21).

Minimum contents of the engagement letter (para 5.5)

(a) objective and scope; (b) cost auditor's responsibilities; (c) management's responsibilities; (d) applicable cost reporting framework; (e) expected form and content of reports

Five items. The report item includes a statement that a report may differ from its expected form and content.

Recurring audits (para 5.8)

Assess whether terms need revising or whether to remind the entity of existing terms

A new letter each period is not compulsory (para 6.26).

Change in terms (paras 5.9, 5.10, 5.11)

No agreement to change without reasonable justification; if change is to lower assurance, determine whether justification exists; record new terms in writing

New terms go in an engagement letter or other suitable written agreement.

If change is refused (para 5.12)

Withdraw where possible under law or regulation + determine any obligation to report to others

Applies when the auditor cannot agree to the change and management does not let the original engagement continue. Others include those charged with governance, owners or regulators.

Factors in overall audit strategy (SCA 101, para 5.4)

Preliminary activities + previous knowledge + business knowledge + nature and scope + statutory deadlines and reporting format + direction of audit effort + resources

Seven factors. Learn them as a list; MCQs often ask which item is not a factor.

Audit plan versus overall strategy (para 6.6)

Audit plan = strategy + nature, timing and extent of procedures by team members

The plan is more detailed than the strategy.

Supervision depends on (para 6.7)

Size and complexity + risk assessment results + capability and competence of team members

These drive the nature, extent and timing of direction, supervision and review.

Initial audit additions (para 6.9)

Previous auditor consultation + prior working papers + major issues discussed + opening balances (e.g. inventory) + quality control procedures

Purpose of planning is the same for initial and recurring audits, but activities may expand for an initial audit.

Audit documentation (para 4.2)

Records (physical or electronic) + working papers, prepared by and for, or obtained and retained by, the cost auditor in connection with the audit

Wider than working papers alone. It includes items obtained from the auditee and retained.

Audit working papers (para 4.6)

Documents recording all audit evidence obtained, used to support the audit work and give assurance that the audit followed the Cost Auditing Standards

Learn the purpose: support the work and show compliance with the Standards.

Factors affecting content and form (para 6.3)

(a) size and complexity of auditee; (b) extent of computerisation of cost records; (c) assessed risks of material misstatement of cost; (d) methodology and tools used; (e) nature of audit procedure

Five factors. Examiners often ask you to list them.

Sufficiency (para 6.5)

Documentation must be sufficient and appropriate; oral explanations cannot substitute

If it is not in the file, it is treated as not done.

Team member details (para 6.13)

Preparer's name + details of the cost auditor's review = necessary part of documentation

Shows who did the work and who reviewed it.

Timeliness (para 6.14)

Prepare documentation on a timely basis, during the work

Documentation prepared after the work is likely to be less accurate.

Facts after report date (para 6.15)

Facts known after the report date that would have changed the cost statements or modified the report must be added to the documentation, and the changes reviewed like the original

Added, not substituted for earlier papers.

Final file assembly (para 6.16)

Assemble within a reasonable time after audit completion; afterwards do not delete or discard any documentation before the end of the retention period

Final assembly should be limited to administrative work, since documents are assembled as the audit goes on.

Ownership (para 6.17)

Documentation is the property of the cost auditor; unless law or regulation says otherwise, he may at his discretion make portions or extracts available to clients

The client has no automatic right to the file.

Retention (para 6.18)

Retain for at least 10 years from the date of the Cost Audit Report

The period runs from the report date, not from the year-end or filing date.

Compliance with relevant standards (SCA 103 para 5.2)

Relevant standard = in effect + circumstances it addresses exist

The cost auditor shall comply with each relevant Cost Auditing Standard.

Representing compliance (para 5.4)

Report compliance only if ALL relevant standards are fully complied with

Do not state compliance in the report if even one relevant standard is not fully complied with.

Departure from a requirement (para 5.5)

Exceptional circumstances → alternative audit procedures achieving the aim of the requirement

Departure is allowed only in exceptional circumstances, and alternative procedures are mandatory.

Objective not achieved (para 5.11)

Objective not achieved → evaluate effect on overall objectives → consider modifying opinion

This links the programme to the report.

Plan vs programme

Plan = overall strategy; Programme = detailed procedures

Use this to answer difference questions.

Quick revision

• A cost audit programme is the written plan of procedures, their nature, timing and extent.
• The cost auditor agrees the terms of the engagement with management (SCA 105, para 5.4).
• The role of management in agreeing terms depends on the entity's governance structure and relevant law or regulation.
• Agreeing terms helps avoid misunderstanding about the respective responsibilities of management and the auditor.
• Preparing cost statements under the applicable framework remains management's responsibility, even if a third party helped.
• If terms change, agree and record the new terms in an engagement letter or other suitable written form.
• Do not agree to a change in terms where there is no reasonable justification.
• On recurring audits, assess whether terms need revising or a reminder of existing terms.
• Documentation prepared during the work is likely to be more accurate than documentation prepared afterwards.
• Documentation should show who prepared each document and the details of the auditor's review.
• SCA 102 documentation requirements do not limit SCA 105, and laws may add further requirements.
• Modify the programme when findings or circumstances change, and record the reason.

Common mistakes

• Treating the audit programme and the overall audit strategy as the same thing. Fix: Remember strategy sets scope, timing and direction (para 4.13); the programme is the detailed procedures that follow from it.
• Quoting SCA 103 objectives word for word without being sure of the text. Fix: Give the objectives in your own words, tie them to opinion on cost statements and compliance with the standards, and cite only paragraphs you know.
• Saying a fresh engagement letter must be issued every year. Fix: Para 6.26 says the auditor may decide not to send a new letter each period. The auditor must still assess whether terms need revising or a reminder (para 5.8).
• Listing fees and timetable as mandatory contents. Fix: The mandatory items are the five in para 5.5. Fees, timetable and similar points are examples of additional content in para 6.23.
• Treating the overall strategy and the audit plan as the same thing. Fix: Remember that the plan is more detailed and includes the nature, timing and extent of procedures for team members.
• Writing a generic programme with no link to the case. Fix: Tie every procedure to a named cost head or risk in the question, and say why it is chosen.
• Saying the client owns the cost audit file. Fix: Remember para 6.17: the documentation is the cost auditor's property. He may, at his discretion and unless law says otherwise, share portions or extracts.
• Counting the ten-year retention from the end of the financial year or the filing date. Fix: Para 6.18 says at least ten years from the date of the Cost Audit Report.
• Using plan and programme as the same thing. Fix: Write one line each: plan is the overall strategy, programme is the detailed procedures.
• Saying every Cost Auditing Standard applies to every audit. Fix: State the test: the standard must be in effect and the circumstances it addresses must exist.

Exam tips

• For 'meaning' questions, write the definition first and then the contents; two lines earn the basic marks.
• Quote paragraph numbers only from the text you know: 4.1, 4.8, 4.13, 5.3, 5.8, 5.11 and effective date 11 September 2015.
• In 14-mark answers, structure as meaning, objectives, advantages, link to SCA 103, and revision of the programme.
• Expect MCQs on the definition of audit, cost auditor, overall audit strategy and the effective date.
• In case scenarios, recommend what the programme should cover for the given entity and justify it with professional judgment.
• Write the five para 5.5 items as a numbered list. Examiners look for all five.
• In case scenarios, match the facts to the para 6.26 factors by name, such as change of senior management or change in legal requirements.
• For change-in-terms answers, cover the full chain: justification, written record, or withdrawal plus the reporting-obligation check.