CMA Final · Cost and Management Audit

Preparation and Filing of Cost Audit Report: formula sheet

Full chapter guide

Key formulas

Two-layer structure of Section 148: Cost records: s.148(1) | Cost audit: s.148(2), only for companies already covered by s.148(1) and meeting prescribed net worth or turnover; Audit applicability is a subset of cost records applicability.
Who audits: Cost auditor = cost accountant appointed by the Board (s.148(3)); not the company's s.139 auditor; Remuneration is determined by members in the prescribed manner.
Relation to statutory audit: Cost audit is in addition to audit under s.143 (s.148(4)); Cost audit never replaces the financial statement audit.
Report submission: Report to Board of Directors (s.148(5) proviso); company files with Central Government within 30 days of receiving the copy (s.148(6)); The 30 days run from receipt of the report copy by the company, not from year end.
Standards to follow: Cost auditor must comply with cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval (s.148(3)); Mandatory compliance, not guidance.
Default: Company and officer in default: as per s.147(1); cost auditor in default: s.147(2) to (4) (s.148(8)); Quote the penalty cross-reference, not figures, unless you are sure.
Applicability test (Rules): Step 1 sector in the Rules → Step 2 net worth/turnover limits → Step 3 exemptions; Use the exact rupee limits and exemption conditions from the Rules as prescribed in your study material.
Who audits: Cost audit under Section 148(2) is conducted by a cost accountant appointed by the Board (S.148(3)); The Board appoints. Members do not appoint, but they determine the remuneration.
Bar on statutory auditor: Person appointed as auditor under Section 139 cannot be appointed cost auditor; First proviso to S.148(3). This is the key independence rule.
Standards: Cost auditor must comply with cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval; Second proviso and Explanation to S.148(3).
In addition to S.143 audit: Cost audit = additional to statutory audit; S.148(4).
Reporting line: Cost audit report goes to the Board of Directors; Proviso to S.148(5).
Filing of report: Company furnishes 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). Form CRA-4 is the Rules' form for this. Check the Rules for it.
Audit Committee role: Audit Committee terms of reference include recommendation of appointment, remuneration and terms of appointment of auditors; S.177(4)(i). Committee has at least 3 directors, independent directors a majority (S.177(2)).
Form CRA-2: Company files CRA-2 with the Registrar after the Board appoints the cost auditor; Form and time limit come from the Cost Records and Audit Rules, not from the text of Section 148.
Power to require cost records: Section 148(1): Central Government may, by order, direct a class of companies producing prescribed goods or services to include prescribed cost particulars in their books of account; The particulars cover utilisation of material, labour and other prescribed items of cost. The order applies only to the class of companies it names.
Power to order cost audit: Section 148(2): audit of cost records applies to companies covered by 148(1) that meet the prescribed net worth or turnover; Cost records come first. Cost audit needs a second test of size. The amounts are set by the Rules, so check them there.
Who may be the cost auditor: Section 148(3): a cost accountant, appointed by the Board; the company's section 139 auditor cannot be appointed; The members determine the remuneration in the prescribed manner. The cost auditor must follow the cost auditing standards.
Cost audit is additional: Section 148(4): cost audit is in addition to the section 143 audit; It never replaces the statutory audit.
Report recipient and filing: Section 148(5) proviso: report goes to the Board. Section 148(6): company furnishes it to the Central Government within 30 days of receiving a copy, with full information and explanation on every reservation or qualification; The thirty days run from the company's receipt of the report copy.
Penalty for default: Section 148(8): company and officers in default are punishable as in section 147(1); the cost auditor in default as in section 147(2) to (4); Both the company and the cost auditor are exposed.
Meaning of cost audit report (SCA 109, para 4.5): Cost audit report = auditor's signed report + statements, annexures, qualifications, observations attached or required by law; Use this to answer 'what does the report include'. Annexures are part of the report.
Who receives the report (Section 148(5) proviso): Cost accountant → Board of Directors; The report goes first to the Board, not directly to the Government.
Filing with the Central Government (Section 148(6)): Company furnishes report within 30 days of receiving a copy, with full information and explanation on every reservation or qualification; The 30 days run from the company's receipt of the copy. The company files, not the auditor.
Further information (Section 148(7)): Central Government may call for further information; company furnishes within the time specified; No fixed number of days is stated in the Act for this step.
Standards compliance (Section 148(3), second proviso): Cost auditor must comply with cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval; Link your report content to SCA compliance in answers.
Default consequences (Section 148(8)): Company and officers in default: as per Section 147(1). Cost auditor in default: as per Section 147(2) to (4); Quote the sub-sections only if the question asks about penalties.
Who reports to whom: Cost auditor → Board of Directors; Company → Central Government; Section 148(5) for the first leg, section 148(6) for the second. Never say the cost auditor files the report with the Government.
Auditor's deadline: Report to Board within 180 days from the end of the financial year; This comes from the Companies (Cost Records and Audit) Rules. Count from the year-end, not from the date of appointment.
Company's deadline: Filing date = date of receipt of copy of report + 30 days; Section 148(6). The clock starts on receipt of the copy by the company, not on the date of the Board meeting.
Form and mode: Form CRA-4, filed in XBRL mode with prescribed fee; Prescribed by the Rules. The Act text only says the company must furnish the report to the Central Government.
Accompanying explanation: Report + full information and explanation on every reservation or qualification; Section 148(6). If the report has no qualification, there is nothing to explain, but the report is still filed.
Further information: Central Government may call for more; company furnishes within time specified; Section 148(7).
Penalty for default: Company and officers in default: section 147(1). Cost auditor in default: section 147(2) to (4); Section 148(8). Learn who is punished under which sub-section of 147; do not guess amounts.
Who audits and who appoints: Cost accountant appointed by the Board; remuneration determined by members in the prescribed manner; Section 148(3). The statutory auditor appointed under Section 139 cannot be appointed for the cost audit.
Applicability of auditors' provisions: Qualifications, disqualifications, rights, duties and obligations of auditors under the Chapter apply to the cost auditor, so far as applicable; Section 148(5). This is the source of the cost auditor's powers. The company must give all assistance and facilities.
Report recipient: Cost audit report goes to the Board of Directors; Proviso to Section 148(5). The report is not submitted directly to the Central Government by the auditor.
Filing by company: Within 30 days of receiving the copy of the report, furnish it to the Central Government with full information and explanation on every reservation or qualification; Section 148(6). The duty is on the company.
Further information: Central Government may call for further information; company must furnish it within the time specified; Section 148(7).
Penalty for default: Company and officer in default: Section 147(1). Cost auditor in default: Section 147(2) to (4); Section 148(8). Do not quote amounts unless the question supplies them.
Relationship with Section 143 audit: Cost audit is in addition to the audit under Section 143; Section 148(4). It does not replace the financial audit.

Quick revision

Section 148 lets the Central Government, by order, require specified classes of companies to include prescribed cost items in their books of account.
Cost audit can be ordered only for companies covered by that order and meeting the prescribed net worth or turnover.
The cost auditor is a cost accountant appointed by the Board, with remuneration determined by the members in the prescribed manner.
A person appointed as auditor under Section 139 cannot be appointed to audit cost records.
The cost auditor must comply with the cost auditing standards issued by the Institute with Central Government approval.
Cost audit is in addition to the audit under Section 143.
Qualifications, disqualifications, rights, duties and obligations of auditors apply to the cost auditor so far as applicable.
The company must give the cost auditor all assistance and facilities.
The cost auditor submits the report to the Board of Directors.
The company must furnish the Central Government the report, with full information and explanation on every reservation or qualification, within thirty days of receiving the copy.
The Central Government may call for further information, which the company must furnish within the time it specifies.
On default, the company and officers in default face Section 147(1) punishment, and the cost auditor faces Section 147(2) to (4).

Common mistakes

Saying the Act itself fixes the turnover and net worth limits. Fix: Section 148 only empowers the Central Government and says limits are 'prescribed'. The rupee limits come from the Companies (Cost Records and Audit) Rules, 2014.
Treating every company that keeps cost records as needing a cost audit. Fix: Audit applies under s.148(2) only to companies covered by s.148(1) that also meet the prescribed net worth or turnover. Records alone can apply.
Saying the members appoint the cost auditor. Fix: Section 148(3) says the Board appoints. Members only determine the remuneration.
Allowing the statutory auditor to do the cost audit too. Fix: The first proviso to S.148(3) bars a person appointed under S.139 from the cost audit.
Treating cost records and cost audit as the same requirement. Fix: Remember the order: 148(1) is records, 148(2) is audit. Audit is a further step for covered companies that meet the size test.
Saying the statutory auditor can also do the cost audit. Fix: The first proviso to section 148(3) bars a person appointed as auditor under section 139 from being appointed for cost audit of that company.
Saying the cost auditor files the report with the Central Government. Fix: The auditor submits to the Board. The company furnishes the report to the Central Government within thirty days of receiving a copy.
Treating annexures as separate from the cost audit report. Fix: SCA 109 para 4.5 includes statements, annexures, qualifications and observations in the report.
Saying the cost auditor files the report with the Central Government. Fix: Remember: auditor to Board under section 148(5); company to Central Government under section 148(6).
Counting the thirty days from the date the auditor signs the report. Fix: The text says thirty days from the date of receipt of a copy of the report. Start the count from receipt by the company.

Exam tips

Open every applicability answer with the section: s.148(1) for records, s.148(2) for audit. It shows the examiner you know the two layers.
In case scenarios, underline the product, turnover, net worth and any exemption fact before writing. Examiners hide the deciding fact in one line.
Use the Rules' exact limits and conditions from your updated study material. Do not quote limits from memory if you are unsure, and state the rule in structure if figures are unavailable.
For MCQs, watch for traps: s.139 auditor as cost auditor, audit replacing s.143, and 30 days counted from year end. Each is wrong under the text of s.148.
Finish written answers with a clear conclusion: records only, records and audit, or exempt.
Write the S.148(3) proviso on the statutory auditor in any validity question. It is the most tested point.
Separate who appoints (Board) from who fixes remuneration (members). Examiners set this trap often.
For rotation, form numbers and due dates, say they come from the Rules. Do not invent section numbers.