Cost and Management Audit · Cost Audit Programme

Planning and Preparing the Cost Audit Programme

Updated 11 October 2026 · Fact-checked

Planning a cost audit means forming an overall audit strategy and then a detailed audit plan. The cost audit programme lists the procedures, who performs them, when, and how much is tested. You build it from the auditor's understanding of the business, risks, deadlines and team capability, as SCA 101 requires.

Understand Planning and Preparing the Cost Audit Programme

A cost audit is not started by opening ledgers. It starts with planning. The cost auditor first decides the broad direction of the audit. This is the overall audit strategy. It covers the scope, timing, resources and the areas that need more attention.

The strategy then turns into the audit plan and the cost audit programme. SCA 101 (Planning an Audit of Cost Statements) says the audit plan is more detailed than the overall strategy. It includes the nature, timing and extent of the procedures to be performed by team members.

Planning is a continuing exercise. Risk assessment procedures are planned early. The specific further procedures depend on what those risk assessment procedures show. So the programme is not fixed once and for all. You update it as the audit moves on.

SCA 101 (para 5.4) asks the cost auditor to consider all relevant factors when forming the overall strategy. These are:

results of preliminary activities
knowledge from previous audits and other engagements with the auditee
knowledge of the business
nature and scope of the audit
statutory deadlines and reporting format
factors that decide where to direct audit effort
nature, timing and extent of resources needed

Para 5.6 requires the auditor to plan the direction and supervision of team members and the review of their work. Para 6.7 says these vary with the size and complexity of the entity's activities, risk assessment results, and the capability and competence of each team member. A junior on a complex area needs closer supervision and review.

For a manufacturing company, the programme typically follows the cost statements: materials, employee cost, utilities, overheads, depreciation, capacity and by-products. For each area it states the procedure, the person responsible, the timing, the sample extent and the reviewer. Para 6.4 adds that involving the audit partner and key team members in planning brings in their experience and makes planning more effective.

Key rules to remember

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.

How to solve Planning and Preparing the Cost Audit Programme questions

Use this method for any question on planning or on drawing up a programme. It keeps the answer tied to the standard and to the case given.

1Identify the auditee and its business: industry, products, size, and whether the audit is initial or recurring.
2List the preliminary activities and the relevant factors from SCA 101 para 5.4, applying each to the case facts.
3State the overall audit strategy: scope, statutory deadline, reporting format and resources needed.
4Assess the risk areas from the case, such as inventory valuation or overhead allocation, and decide where to focus effort.
5Draw up the programme area by area: procedure, nature, timing, extent of testing, person responsible and reviewer.
6Plan direction, supervision and review of team members, linked to their competence and the complexity of the area.
7Add initial-audit steps if relevant: previous auditor, prior papers, opening balances, quality control review.
8Close by noting the plan will be updated as risk assessment results come in, and that working papers will document it.

Quickest way: Factor-to-programme grid

When to use it: Use it when a descriptive question gives limited time and asks you to prepare or explain a programme for a given company.

Write the seven para 5.4 factors in a line as a checklist.
Pick the two or three that the case facts stress, such as a tight deadline or a new engagement.
For each cost head in the case, write one line: procedure, timing, extent, who.
Add one line on supervision and review linked to team competence.
Add one line that the plan will be revised after risk assessment.

Common mistakes in Planning and Preparing the Cost Audit Programme

Treating the overall strategy and the audit plan as the same thing.
Both are planning documents and the terms sound alike.
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.
Students recall a standard list instead of reading the facts.
Fix: Tie every procedure to a named cost head or risk in the question, and say why it is chosen.
Leaving out supervision and review of the team.
Students focus only on the tests of cost items.
Fix: Add a line on direction, supervision and review, and link its extent to complexity, risk and team competence.
Ignoring extra steps in an initial engagement.
Students assume planning is identical every year.
Fix: Mention consultation with the previous auditor, review of prior working papers where law permits, opening balances such as inventory, and quality control requirements.
Presenting the programme as fixed once drawn up.
The word programme suggests a final document.
Fix: State that specific further procedures depend on risk assessment outcomes, so the plan develops during the audit.

Worked examples

Example 1

You are appointed cost auditor of a manufacturing company for the first time. List the additional planning matters you would consider because it is an initial engagement.

Show the solution

Note that the purpose of planning is the same for initial and recurring audits, but planning may expand because you lack previous experience with the entity.
Consider consulting the previous auditor and reviewing the previous year's working papers, if law or regulation does not prohibit it, along with prior-year transactions that affect current cost.
Consider major issues on cost accounting principles or auditing and reporting standards discussed with management at appointment, how they were communicated to those charged with governance, and their effect on strategy.
Plan procedures to obtain sufficient appropriate evidence on opening balances, for example inventory.
Apply the firm's quality control requirements, such as a second partner or senior reviewing the strategy before significant procedures begin or reviewing reports before issue.

Answer: For an initial cost audit, expand planning to cover the previous auditor and prior working papers, major issues discussed with management, evidence on opening balances such as inventory, and the firm's quality control requirements.

Example 2

A cost auditor is planning the audit of a large multi-product company. A new junior member will be assigned to overhead allocation. What should the auditor consider in planning direction, supervision and review?

Show the solution

State that SCA 101 para 5.6 requires the auditor to plan the nature, extent and timing of direction, supervision and review of team members' work.
Apply para 6.7: the size and complexity of the company's activities. A large multi-product company has complex overhead allocation.
Consider the risk assessment results. If overhead allocation is a higher-risk area, supervision should be closer.
Consider the capability and competence of the junior member. A new junior needs more direction and more detailed, earlier review.
Conclude with a plan: brief the junior on the programme, assign a senior to supervise, and review the working papers promptly.

Answer: Because the company is large and complex, overhead allocation is risky and the junior is new, the auditor should plan closer direction, closer supervision and more thorough, timely review, as para 6.7 links these to complexity, risk and competence.

Exam tips

Learn the seven factors of SCA 101 para 5.4 as a list. Direct recall questions are common.
In case questions, name the cost heads of the company and fit procedures to them rather than giving a general list.
Always mention supervision and review. It is easy marks that many students skip.
Use the words nature, timing and extent for each procedure; they signal a standard-based answer.
For MCQs on initial audits, remember that planning purpose is the same and only the activities may expand.

Practice questions from Cost Audit Programme

Planning and Preparing the Cost Audit Programme in other exams

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

Planning and Preparing the Cost Audit Programme: frequently asked questions

What is the difference between audit strategy and audit plan?

The overall audit strategy sets the scope, timing and direction of the audit. The audit plan is more detailed. It includes the nature, timing and extent of procedures to be performed by team members.

What should a cost audit programme contain?

It should list the procedures for each area, their nature, timing and extent, the person responsible and the reviewer. For a manufacturing company, it follows heads such as materials, employee cost, overheads and depreciation.

Is the cost audit programme fixed once prepared?

No. Risk assessment is planned early, and the specific further procedures depend on its results. So the plan develops and is updated as the audit progresses.

Does planning differ for a first-year cost audit?

The purpose is the same, but planning may expand. You may consult the previous auditor, review prior working papers if permitted, and plan procedures on opening balances such as inventory.