Cost and Management Audit · Basics of Cost Audit

Appointment, Rights and Duties of the Cost Auditor

Updated 11 October 2026 · Fact-checked

Under Section 148(3) of the Companies Act, 2013, the Board appoints a cost accountant as cost auditor, on remuneration fixed by the members in the prescribed manner. The company's section 139 statutory auditor cannot be appointed. The cost auditor must follow cost auditing standards and report to the Board.

Understand Appointment, Rights and Duties of the Cost Auditor

A cost audit is not the same as the normal financial audit. Section 148 lets the Central Government order that cost records be kept, and then that those records be audited. The audit is done by a separate professional, the cost auditor.

The key point is who appoints. Under section 148(3), the Board appoints the cost auditor. The members decide the remuneration, in the manner prescribed. So the Board picks the person, and the shareholders approve the fee. Many students reverse this.

There is a bar on overlap. The first proviso says a person appointed under section 139 as the company's auditor cannot be appointed for the cost audit. The second proviso says the cost auditor must comply with the cost auditing standards, which are issued by the Institute of Cost Accountants of India with the approval of the Central Government.

The cost audit is in addition to the audit under section 143 (section 148(4)). It does not replace the financial audit.

The cost auditor is treated like an auditor for most purposes. Section 148(5) applies the qualifications, disqualifications, rights, duties and obligations of auditors under the Chapter, so far as applicable. The report goes to the Board of Directors. The company must give all assistance and facilities.

Key rules to remember

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.

How to solve Appointment, Rights and Duties of the Cost Auditor questions

Most questions give a short facts scenario and ask whether an appointment or act is valid, or ask you to list rights and duties. Use this method.

1Identify what is asked: appointment, eligibility, remuneration, rights, duties, report or penalty.
2Recall the rule in section 148 by sub-section: (3) appointment, (4) in addition to s.143, (5) rights, duties and report, (6) filing, (8) penalty.
3Check who acts. The Board appoints the cost auditor and the members determine remuneration. Check the facts against this.
4Test eligibility: is the person a cost accountant, and not the company's section 139 auditor? Then check for disqualifications borrowed from the auditor provisions, such as being an officer or employee of the company, applying them so far as applicable.
5Apply the rule to each fact, one line per fact, with the sub-section in brackets.
6State a clear conclusion (valid, invalid, or what the company must do), and mention the consequence under s.148(8) if there is a default.

Quickest way: Three-Question Check

When to use it: Use for MCQs and short case questions where you must decide validity in under two minutes.

Who did it? Board appoints; members fix remuneration. Any other split is wrong.
Who is it? Must be a cost accountant and must not be the s.139 auditor of that company, nor otherwise disqualified as an auditor would be.
Who gets what? Report goes to the Board; the company files with the Central Government within 30 days of receiving a copy; the audit is additional to the s.143 audit.

Common mistakes in Appointment, Rights and Duties of the Cost Auditor

Writing that the members appoint the cost auditor.
Students mix up the cost auditor with the statutory auditor under section 139, who is appointed by members.
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.
Both are called auditors and students assume one firm can do both.
Fix: The first proviso to s.148(3) bars a person appointed under s.139 from the cost audit.
Treating cost audit as a replacement for the financial audit.
The word 'audit' suggests one audit covers everything.
Fix: Quote s.148(4): it is in addition to the s.143 audit.
Saying the cost auditor files the report with the Central Government.
Students confuse the auditor's report to the Board with the company's filing duty.
Fix: The auditor submits to the Board (s.148(5) proviso). The company furnishes it to the Central Government within 30 days of receiving a copy (s.148(6)).
Listing rights and duties from memory without a legal source.
The rights are not listed in s.148 itself, so students skip the link.
Fix: State that s.148(5) applies the auditor provisions of the Chapter so far as applicable, then list rights (access to records, information) and duties (report, comply with standards).
Forgetting that the penalty differs for company and auditor.
Students write one general penalty line.
Fix: Write both: company and officers in default under s.147(1); cost auditor in default under s.147(2) to (4).

Worked examples

Example 1

Mehta Chemicals Ltd. is covered by a cost audit order under section 148. The Board appoints Rao & Associates, a firm of cost accountants, as cost auditor. The members, at the general meeting, are asked to approve the remuneration. Separately, Sharma & Co., the company's statutory auditor under section 139, is also proposed as cost auditor to save cost. Examine the validity.

Show the solution

Appointment: under s.148(3), the Board appoints the cost auditor. The Board appointing Rao & Associates is correct.
Qualification: Rao & Associates is a firm of cost accountants, which meets the requirement of being a cost accountant.
Remuneration: s.148(3) says the remuneration is determined by the members in the prescribed manner. Placing it before the members is correct.
Sharma & Co.: the first proviso to s.148(3) says no person appointed under s.139 as the company's auditor shall be appointed for the cost audit.
Therefore the proposal for Sharma & Co. is invalid, whatever the cost saving.

Answer: The appointment of Rao & Associates by the Board, with members determining remuneration, is valid. The proposal to appoint Sharma & Co., the section 139 auditor, as cost auditor is invalid under the first proviso to section 148(3).

Example 2

Explain to the Board of a company the key duties of the company and the cost auditor on the cost audit report, and the consequence of default, with reference to section 148.

Show the solution

Auditor's report: under the proviso to s.148(5), the cost accountant submits the report on the audit of cost records to the Board of Directors.
Standards: under the second proviso to s.148(3), the cost auditor must comply with cost auditing standards.
Company's assistance: s.148(5) makes it the company's duty to give all assistance and facilities to the cost auditor for auditing the cost records.
Company's filing: under s.148(6), within thirty days from receipt of a copy of the cost audit report, the company furnishes the Central Government with the report and full information and explanation on every reservation or qualification.
Further information: under s.148(7), if the Central Government needs more, the company must furnish it within the time specified.
Default: under s.148(8), the company and officers in default are punishable as in s.147(1); the cost auditor in default as in s.147(2) to (4).

Answer: The cost auditor reports to the Board and follows cost auditing standards. The company gives full facilities, files the report with the Central Government within 30 days of receiving a copy with explanations for every reservation, and supplies further information when called for. Default attracts s.147(1) for the company and officers, and s.147(2) to (4) for the cost auditor.

Exam tips

In MCQs, the favourite trap is the swap: Board appoints, members decide remuneration. Read each option for who does what.
In case questions, cite the sub-section next to every point. It shows application, not recall.
For rights and duties, anchor the answer in s.148(5) first, then give the points. Do not claim they are listed in s.148 itself.
Keep the 30-day period and the Board as report recipient in memory. They are easy 2-mark points.
Always mention that cost audit is in addition to the s.143 audit when comparing the two audits.

Practice questions from Basics of Cost Audit

Appointment, Rights and Duties of the Cost Auditor in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Appointment, Rights and Duties of the Cost Auditor: frequently asked questions

Who appoints the cost auditor under Section 148?

The Board appoints the cost auditor under section 148(3). The remuneration is determined by the members in the prescribed manner. The appointee must be a cost accountant.

Can the statutory auditor also be the cost auditor?

No. The first proviso to section 148(3) says a person appointed under section 139 as the company's auditor cannot be appointed to audit cost records.

To whom does the cost auditor submit the report?

The cost auditor submits the report to the Board of Directors, as the proviso to section 148(5) states. The company then furnishes it to the Central Government within thirty days of receiving a copy, with explanations for any reservation or qualification.

Where do the rights and duties of the cost auditor come from?

Section 148(5) applies the qualifications, disqualifications, rights, duties and obligations of auditors under the Chapter to the cost auditor, so far as applicable. It also places a duty on the company to give all assistance and facilities.

What is the penalty for default under Section 148?

Under section 148(8), the company and every officer in default are punishable as provided in section 147(1). A cost auditor in default is punishable as provided in section 147(2) to (4).