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CMA Final · Cost and Management Audit

Preparation and Filing of Cost Audit Report

Cost audit under Section 148 of the Companies Act, 2013 is an audit of cost records by a cost accountant appointed by the Board. The auditor reports to the Board, and the company then sends the report to the Central Government within thirty days of receiving it. To solve questions, identify applicability, then appointment, then records, report and filing.

What this chapter covers

This chapter follows one cost audit from start to finish. It begins with Section 148: who must keep cost records, who must get them audited, and what the Central Government can order. It then covers who can be the cost auditor, how the auditor is appointed, and what records the company must keep. Section 148 does not give the form numbers. Forms such as CRA-1 (cost records) come from the Companies (Cost Records and Audit) Rules, so learn them as Rules content.

The second half is about output. You learn what the cost audit report must contain (the report form, CRA-3, also comes from the Rules), how the auditor submits it to the Board, and how the company files it with the Central Government. The chapter ends with the duties, rights and penalties that apply to the cost auditor and the company if something goes wrong. Section 148(5) brings in the auditors' rights and duties from the Chapter, and Section 148(8) sets out the penalties.

It connects directly to the rest of Paper 17. Cost Auditing Standards decide how the auditor works. The audit programme and the audit of specific cost heads decide what the auditor checks. This chapter is where all of that turns into a signed report and a filing. Questions here are often case-based, so you must apply the rule to a given company.

This chapter is mostly rule-based, which makes it very scoreable if you learn the conditions exactly. It suits both Section A, where a case scenario can test appointment or filing, and the written section, where you may be asked to advise a company or auditor on a situation. Small details such as who appoints, who receives the report and what the thirty-day limit refers to decide whether an answer is right or wrong. Students who learn the sequence once can answer many different case questions from the same base.

Preparation and Filing of Cost Audit Report: topics in the order to study them

  1. 1Section 148 and Cost Audit ApplicabilityEverything else depends on knowing when cost records and cost audit apply, and that the Central Government decides this by order.
  2. 2Appointment of Cost Auditor (Section 148(3))Once you know a cost audit is needed, the next question is who can do it and how that person is appointed. Any rotation or procedural rules sit outside Section 148, so study them with the Rules.
  3. 3Cost Records and Maintenance (Form CRA-1 under the Rules)The auditor audits cost records, so you must know what the company has to keep before you study the audit output.
  4. 4Contents and Format of Cost Audit Report (CRA-3 under the Rules)With records and auditor clear, you can now study what the report says and how it is laid out.
  5. 5Submission, Filing and Timelines of Cost Audit ReportThis follows the report: to whom the auditor submits it, and what the company must do next and by when.
  6. 6Duties, Rights and Penalties applicable to Cost Auditor (Section 148(5), (8))Revise this last because it ties together the whole chapter and covers what happens on default. The cost auditor's rights and duties come from the Chapter on auditors through Section 148(5), and the penalties come from Section 148(8).

How to prepare Preparation and Filing of Cost Audit Report

Treat this chapter as a process you can walk through in order. Learn the law in plain words first, then practise applying it to short cases.

  1. Read Section 148 sub-section by sub-section and write one line for each: order, audit direction, appointment, addition to Section 143 audit, duties, filing, further information, default.
  2. Build a one-page flow: applicability, appointment by Board, records, audit, report to Board, company files with Central Government, follow-up queries.
  3. Learn the proviso conditions exactly: the statutory auditor under Section 139 cannot be appointed as cost auditor, and the cost auditor must comply with the cost auditing standards.
  4. Learn CRA-1 and CRA-3 (forms under the Cost Records and Audit Rules, not Section 148) by purpose and contents rather than by memorising layouts: records for CRA-1, the auditor's report and annexures for CRA-3.
  5. Practise short case questions. For each, state the rule, apply it to the facts, and give a clear conclusion in one or two sentences.
  6. Make a table-free list of timelines and who acts, then test yourself from memory until you can write it without looking.
  7. Finish with the penalty provisions and the point that default can attach to both the company and officers, and separately to the cost auditor.

Common mistakes in Preparation and Filing of Cost Audit Report

  • Saying the cost auditor reports to the Central Government.

    Fix: Remember the two steps: the cost auditor submits to the Board, and the company then furnishes the report to the Central Government.

  • Treating the thirty days as running from the end of the financial year.

    Fix: Section 148(6) gives thirty days from the date of receipt of a copy of the cost audit report prepared in pursuance of a direction under sub-section (2). Tie the clock to receipt, not to year end.

  • Allowing the statutory auditor to also do the cost audit.

    Fix: Cite the proviso: a person appointed under Section 139 as auditor cannot be appointed for the cost audit.

  • Assuming every company must have a cost audit.

    Fix: Cost audit applies only where the Central Government has ordered it for the class of company and the prescribed net worth or turnover is met. Check the facts before concluding.

  • Giving a rule without applying it to the case.

    Fix: Use three lines: the rule, the facts, the conclusion. Name the company and state who must act.

  • Mixing up who is penalised on default.

    Fix: Keep them apart: the company and officers in default under Section 147(1), and the defaulting cost auditor under Section 147(2) to (4).

Last-day revision: Preparation and Filing of Cost Audit Report

  • Section 148 lets the Central Government, by order, require specified classes of companies to include prescribed cost items in their books of account.
  • Cost audit can be ordered only for companies covered by that order and meeting the prescribed net worth or turnover.
  • The cost auditor is a cost accountant appointed by the Board, with remuneration determined by the members in the prescribed manner.
  • A person appointed as auditor under Section 139 cannot be appointed to audit cost records.
  • The cost auditor must comply with the cost auditing standards issued by the Institute with Central Government approval.
  • Cost audit is in addition to the audit under Section 143.
  • Qualifications, disqualifications, rights, duties and obligations of auditors apply to the cost auditor so far as applicable.
  • The company must give the cost auditor all assistance and facilities.
  • The cost auditor submits the report to the Board of Directors.
  • The company must furnish the Central Government the report, with full information and explanation on every reservation or qualification, within thirty days of receiving the copy.
  • The Central Government may call for further information, which the company must furnish within the time it specifies.
  • On default, the company and officers in default face Section 147(1) punishment, and the cost auditor faces Section 147(2) to (4).

Preparation and Filing of Cost Audit Report practice questions

Preparation and Filing of Cost Audit Report in other exams

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

Preparation and Filing of Cost Audit Report: frequently asked questions

Is cost audit under Section 148 the same as the audit under Section 143?

No. Section 148 says the cost audit is in addition to the audit conducted under Section 143. It audits cost records, and the statutory auditor cannot be appointed for it.

Who appoints the cost auditor?

The Board appoints the cost auditor. The members determine the remuneration in the prescribed manner. The auditor must be a cost accountant.

To whom does the cost auditor submit the report?

The cost auditor submits the report to the Board of Directors of the company. The company then furnishes it to the Central Government within thirty days of receiving the copy, along with full information and explanation on every reservation or qualification.

What happens if the company or auditor defaults?

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).