CMA Intermediate · Corporate Accounting and Auditing

Cost Audit: formula sheet

Full chapter guide

Key formulas

Definition to remember: Cost audit = verification of cost records and cost statements + check of compliance with cost accounting principles, plans and rules; Use this one-line definition to open any answer.
Three objective groups: Accuracy of cost data + Detection of errors and fraud + Help to management; Organise longer lists of objectives under these three heads for easy marking.
Cost audit vs financial audit (focus): Cost audit: cost records and cost statements. Financial audit: financial statements and true and fair view; Cost audit is mainly concerned with cost data, not with the overall financial position.
Cost audit vs management audit (focus): Cost audit: accuracy of costs and cost compliance. Management audit: effectiveness of management policies and performance; Management audit looks at managerial effectiveness; cost audit looks at the cost data and its proper recording.
Step 1: Sector test: Company must produce goods or services listed in Table A (regulated) or Table B (non-regulated) of the Rules; If the product or service is in neither table, the Rules do not make it subject to cost records or cost audit.
Cost records test: Overall turnover in the immediately preceding financial year ≥ ₹35 crore → maintain cost records; Turnover means that of all products and services of the company, not only the listed ones. Check the latest amendments for exemptions.
Cost audit: regulated sectors (Table A): Overall turnover ≥ ₹50 crore, or turnover of the individual product or service covered by cost records ≥ ₹25 crore; Either limit is enough, as the rule is worded. The company must already be covered for cost records.
Cost audit: non-regulated sectors (Table B): Overall turnover ≥ ₹100 crore, or turnover of the individual product or service covered by cost records ≥ ₹35 crore; Either limit is enough, as the rule is worded. The company must already be covered for cost records.
Timeline for the audit: Board appoints the cost auditor within 180 days of the start of the financial year; auditor reports within 180 days of the year-end; The company informs the Central Government of the appointment in Form CRA-2 within 30 days of the Board meeting at which the auditor is appointed, and in any case within 180 days of the start of the financial year. The report goes in Form CRA-3. The company files it in CRA-4 within 30 days of receiving it.
Who audits: Cost accountant in practice, appointed by the Board on the audit committee's recommendation; members ratify the remuneration; The company's statutory auditor cannot be appointed as cost auditor. Cost records are preserved for at least 8 years.
Direction to include cost particulars: Section 148(1): Central Government order → class of companies → cost items included in books of account; Applies to prescribed classes producing prescribed goods or providing prescribed services. Consult the sector regulator first for companies under a special Act.
Cost audit trigger: Section 148(2): companies covered by 148(1) + prescribed net worth or turnover + Government order → audit of cost records; Cost records and cost audit are separate duties. Records alone do not mean an audit.
Who audits: Section 148(3): cost accountant appointed by the Board; the section 139 auditor cannot be appointed for it; Remuneration is determined by the members in the prescribed manner. Cost auditing standards must be followed.
Report recipient: Section 148(5) proviso: cost audit report goes to the Board of Directors; The company then has 30 days from receiving a copy to furnish it to the Central Government with explanation of every reservation or qualification (section 148(6)).
Electronic records: Section 120: records may be kept in electronic form in the prescribed form and manner; Applies to documents, records and registers a company must keep under the Act.
Duty to assist: Section 148(5): company must give all assistance and facilities to the cost auditor; Auditor qualifications, rights and duties apply so far as applicable.
Who appoints and who is eligible: Cost auditor = cost accountant, appointed by the Board; Section 148(3). A Section 139 statutory auditor of the company cannot be appointed as cost auditor.
Remuneration: Board appoints; members determine remuneration in the prescribed manner; Section 148(3). Do not write that the Board fixes the fee on its own.
Standards to follow: Cost auditor must comply with cost auditing standards; Standards are issued by the Institute of Cost Accountants of India with Central Government approval.
Relation to statutory audit: Cost audit is in addition to the Section 143 audit; Section 148(4).
Reporting line: Cost auditor → Board of Directors; company → Central Government within 30 days of receiving the report; Section 148(5) proviso and 148(6). The company must explain every reservation or qualification.
Rights and duties: Auditor's qualifications, disqualifications, rights, duties and obligations apply so far as applicable; Section 148(5). The company must give all assistance and facilities.
Penalty for default: Company and officers in default: Section 147(1). Cost auditor in default: Section 147(2) to (4); Section 148(8).
Who appoints the cost auditor: Appointed by the Board; remuneration determined by the members; Section 148(3). The company's section 139 statutory auditor cannot be appointed for the cost audit.
To whom the report goes: Cost accountant → Board of Directors; Section 148(5) proviso. The report is submitted to the Board, not to the Central Government.
Filing timeline: Company → Central Government within 30 days of receiving a copy of the report; Section 148(6). Send it with full information and explanation on every reservation or qualification.
Further information: Central Government may call for more information; company furnishes within the time specified; Section 148(7).
Relationship with statutory audit: Cost audit is in addition to the section 143 audit; Section 148(4).
Planning duty: Auditor shall prepare and document the overall audit strategy and audit plan; SCA 101, Scope (para 3).
Standards compliance: Cost auditor shall comply with the cost auditing standards; Second proviso to section 148(3).
Use of 'true and fair' wording: Only if the law or regulation prescribes it in the cost audit report format; SCA 105, para 6.33.
Penalty for default: Company and officers: section 147(1). Cost auditor: section 147(2) to (4); Section 148(8).
Cost auditing standards: Standards issued by ICMAI, with Central Government approval (Section 148(3), Explanation); The cost auditor must comply with them (second proviso to Section 148(3)).
Who appoints the cost auditor: Board appoints; remuneration determined by members in the prescribed manner (Section 148(3)); The Section 139 statutory auditor cannot be appointed as cost auditor.
Who receives the cost audit report first: Cost auditor → Board of Directors (proviso to Section 148(5)); The report goes to the Board, not directly to the Government.
Filing with Central Government: Company furnishes report within 30 days of receiving a copy, with full information and explanation on every reservation or qualification (Section 148(6)); The duty is on the company, and the clock runs from receipt of the copy.
Further information: Central Government may call for more; company furnishes within time specified (Section 148(7)); Arises after the Government considers the report and the company's explanation.
Penalty for default: Company and officers in default: Section 147(1). Cost auditor in default: Section 147(2) to (4). (Section 148(8)); Section 148(8) points to Section 147; the exact penalty amounts sit in Section 147, which is not reproduced here.
Relation to Section 143 audit: Cost audit is in addition to the Section 143 audit (Section 148(4)); One does not replace the other.

Quick revision

Section 148(1): the Central Government may, by order, direct that particulars of material, labour or other cost items be included in the books of prescribed classes of companies.
Section 148(2): the Central Government may order a cost records audit for covered companies with a prescribed net worth or turnover.
The cost audit is conducted by a cost accountant appointed by the Board.
The remuneration of the cost auditor is determined by the members in the prescribed manner.
A person appointed as auditor under Section 139 cannot be appointed for the cost audit of the same company.
The cost auditor must comply with the cost auditing standards.
Cost auditing standards are issued by the Institute of Cost Accountants of India with the approval of the Central Government.
Cost audit is in addition to the audit under Section 143. It does not replace it.
The cost auditor submits the report to the Board of Directors of the company.
The company must furnish the cost audit report to the Central Government within thirty days of receiving it, with full information and explanation on every reservation or qualification.
The Central Government may call for further information, which the company must give within the time it specifies.
On default, the company and its officers in default are punishable under Section 147(1), and the cost auditor under Section 147(2) to (4).

Common mistakes

Saying cost audit is the same as cost accounting Fix: Cost accounting records and analyses costs. Cost audit independently verifies those records and statements.
Stating that cost audit gives a true and fair view of the financial statements Fix: Cost audit checks cost records and statements. The true and fair view belongs to financial audit.
Saying every company with turnover above ₹35 crore needs a cost audit. Fix: Treat ₹35 crore as the threshold for cost records only. Cost audit has higher limits that depend on the table.
Applying the Table A and Table B audit limits the wrong way round. Fix: Regulated sectors have the lower limits (₹50 crore and ₹25 crore). Non-regulated sectors have the higher limits (₹100 crore and ₹35 crore).
Saying every company must keep cost records. Fix: Write that only classes of companies covered by the Government order and rules, for the prescribed goods or services, must do so.
Treating cost records and cost audit as the same thing. Fix: Keep sub-section (1) for records and sub-section (2) for audit. A company may need records without an audit.
Writing that the members appoint the cost auditor and the Board fixes the fee. Fix: Remember: the Board appoints the cost auditor, and the members determine the remuneration.
Allowing the company's statutory auditor to also do the cost audit. Fix: The first proviso to Section 148(3) bars a person appointed under Section 139 from the cost audit.
Saying the cost auditor files the report with the Central Government. Fix: The cost accountant submits to the Board of Directors. The company furnishes it to the Central Government under section 148(6).
Counting the 30 days from the balance sheet date or the Board meeting. Fix: The text says thirty days from the date of receipt of a copy of the cost audit report.

Exam tips

Begin every answer with a one-line definition. It is easy to score and sets the structure.
For comparison questions, write at least five numbered points with both sides against each. A single paragraph earns fewer marks.
Keep cost audit and management audit apart. Use the words "cost records and statements" for the first and "effectiveness of management" for the second.
In MCQs, look for key phrases such as true and fair view, cost records, or managerial performance to identify the audit type.
If a question mentions a company law requirement, mention it briefly and refer to the statutory topics rather than mixing it into the general theory.
For MCQs, the trap is nearly always a mismatch between the table and the limit. Read the sector first, then pick the limit.
In written answers, state the law first: Section 148 gives the power, the 2014 Rules give the thresholds. Then apply the facts in two parts, records and audit.
Learn the forms and time limits together: CRA-2 within 30 days of the Board meeting at which the auditor is appointed (and in any case within 180 days of the start of the financial year), CRA-3 report within 180 days of year-end, CRA-4 filing within 30 days of receipt.