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Cost and Management Audit · Cost Auditor

Remuneration, Removal and Penalties for Cost Auditor

Updated 11 October 2026 · Fact-checked

Under Section 148(3), the Board appoints the cost auditor, and the remuneration is determined by the members in the prescribed manner. Removal and resignation follow the Act's auditor provisions so far as applicable. Default under Section 148 attracts the penalties of Section 147 for the company, its officers and the cost auditor.

Understand Remuneration, Removal and Penalties for Cost Auditor

A cost auditor is appointed under Section 148 to audit cost records. The audit is in addition to the financial audit under Section 143. So the law treats the cost auditor as a separate, independent professional.

The key point on pay is who decides it. The Board appoints the cost auditor, but the members determine the remuneration, in the manner prescribed. The idea is simple: the management that gets audited should not set the auditor's fee. Members, who are outside that chain, decide it. In practice, the Board recommends the fee and the members ratify it. Know this practical position, but quote the Act for the core rule. Section 148 itself says the members determine the remuneration in the prescribed manner.

Removal and resignation are not spelled out in Section 148. Section 148(5) says the qualifications, disqualifications, rights, duties and obligations applicable to auditors under this Chapter apply to a cost auditor, so far as applicable. So you reason from the auditor provisions. Section 140 deals with removal and resignation of the auditor appointed under Section 139, and it is the base you apply by analogy. Do not claim every detail of Section 140 applies word for word. The words "so far as may be applicable" matter.

Penalties come from Section 148(8). If the company defaults, the company and every officer in default are punishable as in Section 147(1). If the cost auditor defaults, the cost auditor is punishable as in Section 147(2) to (4). Section 446B gives lesser penalties for One Person Companies, small companies, start-up companies and Producer Companies. That is the other rule to remember.

Key rules to remember

Appointment and remuneration
Cost auditor appointed by the Board; remuneration determined by the members in the prescribed manner
Section 148(3). Do not say the Board fixes the fee.
Who cannot be cost auditor
Person appointed under Section 139 as company auditor cannot be appointed for the cost audit
First proviso to Section 148(3). The cost auditor must be a cost accountant.
Standards to follow
Cost auditor must comply with the cost auditing standards
Second proviso to Section 148(3). Standards are issued by the Institute with Central Government approval.
Report submission
Cost audit report goes to the Board; company furnishes it to the Central Government within 30 days of receiving a copy
Section 148(5) proviso and Section 148(6), with full information and explanation on every reservation or qualification.
Penalty on default
Company and officers in default: as per Section 147(1). Cost auditor in default: as per Section 147(2) to (4)
Section 148(8).
Lesser penalty
Not more than one-half of the penalty, subject to a maximum of ₹2,00,000 for a company and ₹1,00,000 for an officer in default or other person
Section 446B. Applies to One Person Company, small company, start-up company and Producer Company.
Resignation statement (by analogy)
Auditor who resigns files a statement in the prescribed form with the company and the Registrar within 30 days of resignation
Section 140(2) for the Section 139 auditor. Apply to the cost auditor only so far as applicable under Section 148(5).

How to solve Remuneration, Removal and Penalties for Cost Auditor questions

Use this method for any question on remuneration, removal, resignation or penalty of a cost auditor.

  1. 1Identify what is asked: fee, removal, resignation or penalty. Write that in one line.
  2. 2State the base rule from Section 148 in plain words. For fee: Board appoints, members determine the remuneration in the prescribed manner.
  3. 3Check the facts for a trap. Is the person also the Section 139 auditor? Is the company small, a start-up or a Producer Company?
  4. 4For removal or resignation, say Section 148(5) applies the auditor provisions so far as applicable. Then apply the Section 140 logic: hearing before removal, statement on resignation within 30 days.
  5. 5For penalty, name who defaulted. Company and officers go to Section 147(1). The cost auditor goes to Section 147(2) to (4).
  6. 6Test for lesser penalty under Section 446B and apply the one-half rule with the caps.
  7. 7Give a clear conclusion in one line. Say who is liable and under which provision.

Quickest way: Who, what, which section

When to use it: Use it for MCQs and short notes when you have under two minutes.

  1. Fee: Board appoints, members determine the remuneration. Section 148(3).
  2. Section 139 auditor cannot do the cost audit. Section 148(3) proviso.
  3. Removal or resignation: Section 148(5) borrows the auditor provisions, so far as applicable.
  4. Default: company and officers via Section 147(1), cost auditor via Section 147(2) to (4). Section 148(8).
  5. Small company, OPC, start-up or Producer Company: Section 446B, half the penalty, caps ₹2,00,000 and ₹1,00,000.

Common mistakes in Remuneration, Removal and Penalties for Cost Auditor

  • Writing that the Board fixes the cost auditor's remuneration.

    Students remember that the Board appoints the cost auditor and assume it also sets the fee.

    Fix: Write the two parts separately: Board appoints, members determine the remuneration in the prescribed manner.

  • Saying the statutory auditor can also be the cost auditor.

    Both are audits of the same company, so it feels natural to combine them.

    Fix: Recall the first proviso to Section 148(3). A person appointed under Section 139 cannot be appointed for the cost audit.

  • Quoting Section 140 as if it applies directly and fully to the cost auditor.

    Students memorise Section 140 for the statutory auditor and copy it across.

    Fix: Link through Section 148(5): the provisions apply so far as applicable. Say it is applied by analogy, and keep conclusions to what that wording supports.

  • Mixing up penalty provisions for the company and the cost auditor.

    Section 148(8) has two clauses that both point to Section 147.

    Fix: Clause (a): company and officers in default, Section 147(1). Clause (b): cost auditor, Section 147(2) to (4).

  • Forgetting Section 446B for small companies and start-ups.

    It sits far from Section 148 in the Act.

    Fix: Whenever a case names a small company, OPC, start-up or Producer Company, check the half-penalty rule and the caps of ₹2,00,000 and ₹1,00,000.

  • Confusing the 30-day period for resignation with the 30-day period for furnishing the cost audit report.

    Both use thirty days.

    Fix: Resignation statement: within 30 days of resignation. Cost audit report: company furnishes it to the Central Government within 30 days of receiving a copy.

Worked examples

Example 1

Sunrise Textiles Ltd's Board appointed a cost auditor and fixed a fee of ₹3,00,000 itself. The managing director says no member approval is needed. Advise the company.

Show the solution
  1. Section 148(3) says the cost auditor is appointed by the Board.
  2. The same sub-section says the remuneration is determined by the members in the prescribed manner.
  3. So the Board cannot finally settle the fee on its own. The Board's role is to appoint and to place the fee proposal before the members.
  4. The managing director's view is therefore wrong.

Answer: The fee must be determined by the members in the manner prescribed. The Board appoints the cost auditor but cannot treat its own fixing of ₹3,00,000 as final.

Example 2

Kaveri Components Pvt Ltd, a small company, defaults under Section 148. Assume the Act's penalty for the company on that default is ₹5,00,000 and for an officer in default is ₹3,00,000. Compute the maximum penalty for the company and the officer under Section 446B.

Show the solution
  1. Section 148(8)(a) makes the company and every officer in default punishable as in Section 147(1).
  2. Section 446B applies to a small company: the penalty is not more than one-half of the penalty specified, subject to a maximum of ₹2,00,000 for a company and ₹1,00,000 for an officer in default.
  3. Company: one-half of ₹5,00,000 = ₹2,50,000. This exceeds the cap of ₹2,00,000, so the cap applies.
  4. Officer: one-half of ₹3,00,000 = ₹1,50,000. This exceeds the cap of ₹1,00,000, so the cap applies.

Answer: Maximum penalty is ₹2,00,000 for the company and ₹1,00,000 for the officer in default. The figures of ₹5,00,000 and ₹3,00,000 are assumed for the illustration.

Exam tips

  • In MCQs, watch for the word "determined". The answer is members, not Board.
  • In case scenarios, check whether the proposed cost auditor is also the Section 139 auditor. This is a favourite trap.
  • For removal or resignation, always mention Section 148(5) and the words "so far as may be applicable". It earns marks and keeps you safe.
  • In penalty answers, split company and officers from the cost auditor. Quote Section 148(8) clauses (a) and (b).
  • If the company is small, a start-up, an OPC or a Producer Company, finish with Section 446B and the caps.

Practice questions from Cost Auditor

Remuneration, Removal and Penalties for 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.

Remuneration, Removal and Penalties for Cost Auditor: frequently asked questions

Who decides the remuneration of a cost auditor?

The Board appoints the cost auditor, and the members determine the remuneration in the manner prescribed. This is stated in Section 148(3). Write both parts in your answer.

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 for conducting the audit of cost records.

How is a cost auditor removed or how does the auditor resign?

Section 148 has no separate procedure. Section 148(5) applies the auditor provisions of the Chapter so far as applicable. So you apply the Section 140 logic, such as a hearing before removal and a statement on resignation, and you say it applies as far as applicable.

What is the penalty for default under Section 148?

The company and every officer in default are punishable as provided in Section 147(1). The cost auditor in default is punishable as provided in Section 147(2) to (4). Lesser penalties under Section 446B apply to certain companies.