Cost and Management Audit · Basics of Cost Audit

Cost Auditing Standards and Planning of a Cost Audit

Updated 11 October 2026 · Fact-checked

Cost Auditing Standards (SCA 101-110) are standards issued by the Institute of Cost Accountants of India that a cost auditor must follow. Planning means deciding the scope, risks and team, then writing an audit programme of procedures. Working papers record the evidence. To answer questions, link each step to its standard and its purpose.

Understand Cost Auditing Standards and Planning of Cost Audit

A cost audit is not done in whatever way the auditor likes. Section 148(3) of the Companies Act, 2013 says the auditor conducting the cost audit shall comply with the cost auditing standards. These are the standards issued by the Institute of Cost Accountants of India with the approval of the Central Government. The Institute's series is called the Standards on Cost Auditing (SCA 101-110).

Standards give the auditor a common minimum level of quality. They cover how to document the work (SCA 102), the overall objectives of the auditor and how to conduct an audit (SCA 103), and the terms of the engagement (SCA 105). Learn the SCA number against each subject, because MCQs often ask for it. Do not assume the numbers for other standards unless you have studied them.

Planning comes before field work. The auditor understands the company, its products, its cost records and its cost accounting system. The auditor then decides what to check, how deeply, who will do it and when. Good planning focuses effort on areas of higher risk and avoids wasted time.

The audit programme is the written plan of procedures. It lists what to check, the method (inspection, recomputation, enquiry, analytical review), the person responsible, the time allotted and a space to sign off. It is a working tool. The auditor can change it if new facts appear, and should record why.

Documentation is the proof of the work. Under SCA 102, para 4.6, audit working papers are the documents which record all audit evidence obtained during the audit. They support the audit work done and give assurance that the audit was performed in accordance with the relevant Cost Auditing Standards. If a point is not in the working papers, it is hard to prove it was done.

Key rules to remember

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).

How to solve Cost Auditing Standards and Planning of Cost Audit questions

Use this method for any question on standards, planning, programme or documentation.

1Read the question and mark whether it asks about standards, planning, programme or working papers.
2State the legal base first: Section 148(3) requires compliance with cost auditing standards, which the Institute issues with Central Government approval.
3Name the relevant standard only if you are sure, for example SCA 102 for documentation.
4Define the term in one or two lines, using the plain meaning.
5List the points the question needs: steps of planning, contents of a programme, or contents of working papers.
6Give the purpose of each point, such as risk focus, evidence, review or accountability.
7For a case, apply the points to the company facts given, such as its products, size or cost system.
8Close with a one-line conclusion or recommendation.

Quickest way: Link, define, list, apply

When to use it: Use it for short descriptive questions and for deciding MCQ options quickly.

Link the answer to Section 148(3) or the SCA number.
Define the term in your own words.
List 4-5 points in bullets.
Apply one point to the case in the question.
For MCQs, drop options that confuse the cost audit with the statutory audit or that say standards are optional.

Common mistakes in Cost Auditing Standards and Planning of Cost Audit

Saying cost auditing standards are only guidelines that the auditor may ignore.
Students treat them like advisory notes.
Fix: Quote the second proviso to Section 148(3): the auditor shall comply with the cost auditing standards.
Treating the audit programme as a fixed document that cannot change.
The word programme sounds rigid.
Fix: State that the programme is modified when new facts or risks appear, and the change and reason are documented.
Mixing up planning and the audit programme.
Both are done before field work.
Fix: Planning is the overall strategy and scope. The programme is the detailed list of procedures that comes out of it.
Defining working papers as only the final cost audit report.
Students focus on the output of the audit.
Fix: Working papers record all audit evidence obtained during the audit. The report is a separate output.
Stating that the statutory auditor can also do the cost audit of the same company.
Students think one auditor saves cost.
Fix: Remember the first proviso to Section 148(3): a Section 139 auditor cannot be appointed for the cost audit.
Giving SCA numbers from memory without certainty.
The series looks similar, so numbers get mixed.
Fix: Learn the numbers given in your study material, such as SCA 102 for documentation, and describe the others by name if unsure.

Worked examples

Example 1

Explain why a cost auditor must follow cost auditing standards, and say what the audit working papers are meant to show.

Show the solution

Section 148(3) of the Companies Act, 2013 says the auditor conducting the cost audit shall comply with the cost auditing standards.
These standards are issued by the Institute of Cost Accountants of India with the approval of the Central Government.
So compliance is a legal duty, not a choice.
SCA 102, para 4.6 defines audit working papers as documents which record all audit evidence obtained during the audit.
They support the audit work done and give assurance that the audit was performed in accordance with the relevant Cost Auditing Standards.

Answer: The auditor must follow the standards because Section 148(3) requires it. Working papers record the evidence and show that the audit followed the standards.

Example 2

Mehta Auto Components Ltd has a new cost auditor. After the first meeting, the auditor learns that the company has added a new product line. Explain how the auditor should treat the audit programme.

Show the solution

Planning started with an understanding of the company, so the programme was drawn up on those facts.
A new product line is a change in circumstances and may bring new cost heads and risks.
The auditor should modify the programme to add procedures for the new product line, such as checking its cost records, material usage and cost allocation.
The auditor should adjust the nature, timing and extent of procedures where needed, and the team and time allotment if required.
The auditor should record the change and the reason in the working papers.
The sign-off column for each procedure should be completed as work is done.

Answer: The programme is a flexible plan. The auditor should update it for the new product line and document the change and its reason in the working papers.

Exam tips

Open any answer on standards with Section 148(3): compliance with cost auditing standards is mandatory.
Memorise the SCA 102 working paper definition from para 4.6 and quote it.
In case questions, tie the programme to the facts given and show a change when facts change.
Keep one clear line between planning (strategy) and programme (detailed procedures).
Write the Section 148(4) point when asked about the link with statutory audit: the cost audit is in addition to the Section 143 audit.

Practice questions from Basics of Cost Audit

Cost Auditing Standards and Planning of Cost Audit in other exams

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

Cost Auditing Standards and Planning of Cost Audit: frequently asked questions

What are the Standards on Cost Auditing (SCA 101-110)?

They are the standards issued by the Institute of Cost Accountants of India for cost auditors. Under Section 148(3), the cost auditor must comply with them. They cover areas such as documentation, objectives and conduct of an audit, and engagement terms.

What is an audit programme in cost audit?

It is a written list of the audit procedures to be done, with the method, timing, person responsible and sign-off. It is prepared during planning and can be modified if circumstances change. Changes should be documented.

What are cost audit working papers?

Under SCA 102, para 4.6, they are the documents which record all audit evidence obtained during the audit. They support the work done and show the audit was done in line with the relevant standards.

Is cost audit separate from statutory audit?

Yes. Section 148(4) says the cost audit is in addition to the audit under Section 143. Also, the person appointed as auditor under Section 139 cannot be appointed for the cost audit of that company.