Cost and Management Audit · Cost Auditing and Assurance Standards
Conducting a Cost Audit in Accordance with Standards on Cost Auditing
Updated 11 October 2026 · Fact-checked
SCA 103 requires the cost auditor to comply with every Cost Auditing Standard relevant to the audit. A standard is relevant when it is in effect and the circumstances it addresses exist. The auditor may claim compliance in the report only if all relevant standards are fully complied with. Exceptional departures need alternative procedures.
Understand Conducting an Audit in Accordance with Standards on Cost Auditing
SCA 103 sets the overall objectives of the cost auditor and explains how an audit must be conducted under the Standards on Cost Auditing. The key idea is simple: the standards are not optional guidance. The cost auditor must comply with each one that is relevant to the audit.
When is a standard relevant? Para 5.2 gives a two-part test. The standard must be in effect, and the circumstances it addresses must exist in this audit. If a standard deals with a situation that is absent in the engagement, you do not need to apply it. For example, a standard on a specific topic does not apply if that topic does not arise.
The auditor must also understand the entire text of each standard, including application and other explanatory material (para 5.3). Along with this, the auditor must follow relevant ethical requirements, including independence (para 5.1), and exercise professional judgment in planning and performing the audit (para 5.8).
Para 5.4 controls what the report may say. The auditor shall not represent compliance with the cost auditing standards in the report unless all relevant standards have been fully complied with. Partial compliance does not allow the claim.
The standards do not override law. Para 6.2(b) says the auditor may have to meet legal or regulatory requirements, such as the Companies Act and Rules, in addition to the standards, and may need extra procedures for this. Departures from a relevant requirement are allowed only in exceptional circumstances (para 5.5), and then the auditor must perform alternative procedures to achieve the aim of the requirement.
Key rules to remember
- Relevance of a standard (para 5.2)
- Relevant = In effect AND circumstances addressed by the standard exist
- Both conditions must hold. The auditor must comply with each relevant standard.
- Claiming compliance (para 5.4)
- Compliance stated in report only if ALL relevant standards fully complied with
- Partial compliance does not permit the statement.
- Departure (para 5.5)
- Exceptional circumstances + alternative procedures to achieve the aim of the requirement
- Per para 6.2(c), a departure is expected only where a specific procedure would be ineffective in achieving the aim of the requirement.
- Unachieved objective (para 5.11)
- Objective not achieved → evaluate whether overall objectives can still be achieved → if not, modify opinion
- The modification is made in accordance with the Cost Auditing Standards.
- Compliance with laws (para 5.10)
- No identified or suspected non-compliance → no required procedures on entity's compliance with laws governing cost audit
- The auditor is not required to perform such procedures in that case.
How to solve Conducting an Audit in Accordance with Standards on Cost Auditing questions
Use this method for any question on conduct of audit under SCA 103, whether theory or a short scenario.
- 1Identify the paragraph being tested: 5.1 ethics, 5.2 relevant standards, 5.3 understanding, 5.4 compliance statement, 5.5 departure, 5.8 judgment, 5.10 laws, 5.11 unachieved objectives.
- 2State the rule in the standard's own words, using terms like 'shall' and 'relevant'.
- 3Apply the two-part relevance test (in effect, circumstances exist) if the question asks whether a standard applies.
- 4Check the facts in the case: was every relevant standard complied with fully, or was there a departure?
- 5If there was a departure, check that it was exceptional and that alternative procedures achieved the aim of the requirement.
- 6Link to law where the facts mention the Companies Act or Rules: standards do not override law (para 6.2(b)).
- 7Close with a clear conclusion: may or may not claim compliance, or whether the opinion needs evaluation or modification.
Quickest way: Three-question check
When to use it: For MCQs and short case questions where time is tight.
- Ask: is the standard relevant? Needs both in effect and circumstances existing.
- Ask: was compliance full? If not, the report cannot claim compliance.
- Ask: was any departure exceptional and backed by alternative procedures? If not, it is a failure.
Common mistakes in Conducting an Audit in Accordance with Standards on Cost Auditing
Saying the auditor must apply all Cost Auditing Standards in every audit
Students read 'comply with standards' and ignore the word 'relevant'.
Fix: Always state that only relevant standards apply: in effect and circumstances exist (para 5.2).
Allowing a compliance statement after substantial but not full compliance
Students treat compliance as a matter of degree.
Fix: Para 5.4 requires full compliance with all relevant standards before representing compliance in the report.
Treating departures as freely allowed if the auditor feels it is efficient
Confusion between professional judgment and the right to skip requirements.
Fix: Departure is for exceptional circumstances only, with alternative procedures that achieve the aim (para 5.5).
Claiming the standards override the Companies Act or Rules
Students assume professional standards rank highest.
Fix: The standards do not override law or regulations governing the audit process (para 6.2(b)). Extra procedures may be needed to meet legal requirements.
Saying the auditor must always test the entity's compliance with all laws
Mixing the cost audit with a general compliance audit.
Fix: Para 5.10: no required procedures on compliance with laws governing cost audit if there is no identified or suspected non-compliance.
Forgetting ethics and independence in the conduct of audit
Students focus on procedures only.
Fix: Mention para 5.1: comply with relevant ethical requirements including independence.
Worked examples
Example 1
A cost auditor complied with all relevant Cost Auditing Standards except one procedure in a relevant standard, which she skipped to save time. The procedure was practical and could have been performed. Can she state in her report that the audit was conducted in compliance with the Cost Auditing Standards? Explain.
Show the solution
- Identify the rule: para 5.4 allows a compliance representation only if the auditor has complied fully with all relevant standards.
- Test the departure: para 5.5 permits departure only in exceptional circumstances, and para 6.2(c) expects it only where the procedure would be ineffective in achieving the aim of the requirement.
- Apply to facts: the procedure was practical and the reason was saving time. There was no exceptional circumstance and no alternative procedure.
- Conclude: compliance was not full.
Answer: No. Since she did not comply fully with a relevant standard and had no valid exceptional reason, she cannot represent compliance with the Cost Auditing Standards in the report (para 5.4).
Example 2
During the cost audit of a manufacturing company, the auditor finds that a particular standard is in effect but deals with a situation that does not exist in the company. Must the auditor comply with it? Also, a legal requirement under the Companies Act Rules needs a procedure not listed in the standards. What should the auditor do?
Show the solution
- Apply para 5.2: a standard is relevant when it is in effect and the circumstances it addresses exist.
- Here the standard is in effect but the circumstances do not exist, so it is not relevant to this audit.
- For the legal requirement, use para 6.2(b): the auditor may need additional procedures to comply with legal or regulatory requirements.
- Add that the standards do not override law or regulations that govern the audit process.
Answer: The auditor need not apply that standard because it is not relevant, as the circumstances it addresses do not exist. For the legal requirement, the auditor should perform the additional procedures needed to comply, since the standards do not override law.
Exam tips
- Quote the exact conditions in para 5.2: 'in effect' and 'circumstances exist'. Examiners look for both.
- In case-based MCQs, look for words like 'partially', 'most', or 'saving time'. They usually signal that para 5.4 is not met.
- Link para 5.5 with 6.2(c): exceptional circumstances plus alternative procedures.
- Remember that standards sit below law: mention para 6.2(b) when the Companies Act or Rules appear in the facts.
- Write short answers with the paragraph number first, then the rule, then the application.
Practice questions from Cost Auditing and Assurance Standards
- Which of the following is NOT stated in SCA 103 as an inherent limitation preventing a cost auditor from obtaining absolute assurance?
- Under SCA 103, when may a cost auditor represent in the cost auditor's report that the audit complied with the Cost Auditing Standards?
- SCA 103 says a Cost Auditing Standard is relevant to an audit when:
- A cost auditor relies on a management representation that unit costs of a product were correctly computed, and does not collect further evid…
- In the context of SCA 103, which statement best reflects professional skepticism?
Conducting an Audit in Accordance with Standards on Cost Auditing in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Conducting an Audit in Accordance with Standards on Cost Auditing: frequently asked questions
What does SCA 103 para 5.2 require?
It requires the cost auditor to comply with each Cost Auditing Standard relevant to the audit. A standard is relevant when it is in effect and the circumstances it addresses exist.
When can a cost auditor say the audit complied with the Cost Auditing Standards?
Only when the auditor has complied fully with all the standards relevant to the audit (para 5.4). If any relevant standard was not fully complied with, the representation cannot be made.
Can a cost auditor depart from a requirement in a standard?
Only in exceptional circumstances (para 5.5). The auditor must then perform alternative procedures to achieve the aim of the requirement. A departure is expected only where the specific procedure would be ineffective in achieving that aim.
Do the Cost Auditing Standards override the Companies Act?
No. The application guidance says the standards do not override law or regulations that govern the audit process. The auditor may need extra procedures to meet legal requirements.