Cost and Management Audit · Preparation and Filing of Cost Audit Report

Appointment and Rotation of Cost Auditor under Section 148

Updated 11 October 2026 · Fact-checked

A cost auditor is a cost accountant appointed by the Board, on the Audit Committee's recommendation where one exists, to audit cost records. The Board fixes the remuneration subject to ratification by members. The auditor must not be the company's Section 139 statutory auditor. You then file Form CRA-2 with the Registrar.

Understand Appointment and Rotation of Cost Auditor

Section 148 lets the Central Government order cost audit for prescribed classes of companies. Once a company is covered, someone independent must carry it out. The Act says the audit is done by a cost accountant, appointed by the Board.

The remuneration is not left to the Board alone. Section 148(3) says it is determined by the members in the manner prescribed. In practice the Board fixes the remuneration and the members ratify it, usually through an ordinary resolution at the general meeting. Check the Companies (Audit and Auditors) Rules, 2014 and the Cost Records and Audit Rules for the exact procedure and timelines.

Independence is the core idea. The first proviso to Section 148(3) says no person appointed under Section 139 as the company's auditor can be appointed for the cost audit. The second proviso says the cost auditor must comply with the cost auditing standards, which are issued by the Institute of Cost Accountants of India with the Central Government's approval. Section 148(4) adds that cost audit is in addition to the audit under Section 143. It never replaces the statutory audit.

Section 148(5) applies the qualifications, disqualifications, rights, duties and obligations of auditors under the Chapter to the cost auditor, so far as applicable. The company must give the cost auditor all assistance and facilities. The cost auditor reports to the Board of Directors.

If the company has an Audit Committee under Section 177, the Committee's terms of reference include recommending the appointment, remuneration and terms of appointment of auditors, and reviewing their independence and performance. In the Rules, the Board appoints the cost auditor on that recommendation. The consent and eligibility certificate from the proposed auditor, the Board resolution and the filing of Form CRA-2 follow the Rules. Rotation of cost auditors is a matter of the Rules and ICMAI guidance. It is not in the text of Section 148, so do not quote a section for it.

Key rules to remember

Who audits: Cost audit under Section 148(2) is conducted by a cost accountant appointed by the Board (S.148(3)); The Board appoints. Members do not appoint, but they determine the remuneration.
Bar on statutory auditor: Person appointed as auditor under Section 139 cannot be appointed cost auditor; First proviso to S.148(3). This is the key independence rule.
Standards: Cost auditor must comply with cost auditing standards issued by the Institute of Cost Accountants of India with Central Government approval; Second proviso and Explanation to S.148(3).
In addition to S.143 audit: Cost audit = additional to statutory audit; S.148(4).
Reporting line: Cost audit report goes to the Board of Directors; Proviso to S.148(5).
Filing of report: Company furnishes the report to the Central Government within 30 days of receiving a copy, with full information and explanation on every reservation or qualification; S.148(6). Form CRA-4 is the Rules' form for this. Check the Rules for it.
Audit Committee role: Audit Committee terms of reference include recommendation of appointment, remuneration and terms of appointment of auditors; S.177(4)(i). Committee has at least 3 directors, independent directors a majority (S.177(2)).
Form CRA-2: Company files CRA-2 with the Registrar after the Board appoints the cost auditor; Form and time limit come from the Cost Records and Audit Rules, not from the text of Section 148.

How to solve Appointment and Rotation of Cost Auditor questions

Use this order for any question on appointing a cost auditor. It keeps the answer complete and tied to the law.

1Confirm the company is covered by a Section 148(2) order for cost audit. If not, no appointment is needed.
2Check the person: a cost accountant, not the company's Section 139 auditor, with the required eligibility and independence under the Rules.
3Show the process: Audit Committee recommendation (if the company has one), then Board appointment. The cost auditor gives written consent and a certificate of eligibility.
4Deal with remuneration: the Board fixes it and the members ratify it in the prescribed manner. The members do not appoint.
5Mention the duties that follow: compliance with cost auditing standards, cost audit in addition to the S.143 audit, and the report to the Board.
6State the filing: Form CRA-2 to the Registrar within the time set by the Rules.
7Give a clear conclusion on the facts, naming the defect or the valid step.

Quickest way: Five-check appointment test

When to use it: Use it for MCQs and short case questions asking whether an appointment is valid.

Is the person a cost accountant?
Is the person the Section 139 auditor? If yes, invalid.
Did the Audit Committee recommend (if one exists) and the Board appoint?
Is remuneration ratified by members?
Was CRA-2 filed on time?

Common mistakes in Appointment and Rotation of Cost Auditor

Saying the members appoint the cost auditor.
Students mix it up with statutory auditor appointment at the general meeting.
Fix: Section 148(3) says the Board appoints. Members only determine the remuneration.
Allowing the statutory auditor to do the cost audit too.
Both are audits and both need independence, so students assume one firm can do both.
Fix: The first proviso to S.148(3) bars a person appointed under S.139 from the cost audit.
Saying the cost audit replaces the statutory audit.
Students think cost data is covered by the financial audit.
Fix: S.148(4) says the cost audit is in addition to the S.143 audit.
Quoting a section number for rotation or for Form CRA-2.
Students try to anchor everything to Section 148.
Fix: Section 148 text does not contain these. Say they come from the Rules, with no section number.
Forgetting the Audit Committee's role.
Students stop at the Board.
Fix: Where the company has an Audit Committee, S.177(4)(i) makes recommending the appointment and remuneration part of its terms of reference. Mention it.
Saying the cost auditor reports to the members or the Registrar.
Confusion with the statutory audit report.
Fix: S.148(5) proviso: the report is submitted to the Board. The company then furnishes it to the Central Government (S.148(6)).

Worked examples

Example 1

Rao Steels Ltd is covered by a cost audit order. Its Board proposes to appoint M/s Iyer & Co, the company's statutory auditors under Section 139, who also hold cost accountant qualifications, as cost auditors. Advise.

Show the solution

The company is covered, so a cost auditor is needed under S.148(3).
The first proviso to S.148(3) says a person appointed under S.139 as the company's auditor cannot be appointed for cost audit.
M/s Iyer & Co is the S.139 auditor, so the proposed appointment is not allowed, whatever its qualification.
The cost audit is in addition to the S.143 audit (S.148(4)), so a separate appointment is required.

Answer: The appointment is not valid. The Board must appoint another cost accountant who is not the S.139 auditor.

Example 2

Mehta Textiles Ltd has an Audit Committee. State the steps to appoint a cost auditor and fix remuneration, and what happens next.

Show the solution

The Audit Committee recommends the appointment, remuneration and terms (S.177(4)(i)).
The Board appoints a cost accountant who is not the S.139 auditor (S.148(3)). The proposed auditor gives written consent and a certificate of eligibility under the Rules.
The Board fixes the remuneration, and members determine or ratify it in the prescribed manner, usually by ordinary resolution.
The company files Form CRA-2 with the Registrar within the period set by the Rules.
The cost auditor follows the cost auditing standards and submits the report to the Board (S.148(5) proviso).

Answer: The Board appoints on the Audit Committee's recommendation, members ratify the remuneration, and the company files CRA-2. The auditor reports to the Board.

Exam tips

Write the S.148(3) proviso on the statutory auditor in any validity question. It is the most tested point.
Separate who appoints (Board) from who fixes remuneration (members). Examiners set this trap often.
For rotation, form numbers and due dates, say they come from the Rules. Do not invent section numbers.
In case-based MCQs, apply the five-check test in order and choose the option that fails the first check.
Link the Audit Committee to the appointment. It adds easy marks in written answers.

Practice questions from Preparation and Filing of Cost Audit Report

Appointment and Rotation of 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.

Appointment and Rotation of Cost Auditor: frequently asked questions

Who appoints the cost auditor under Section 148?

The Board appoints a cost accountant under Section 148(3). Where the company has an Audit Committee, it recommends the appointment and remuneration. The members determine the remuneration in the prescribed manner.

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 to audit cost records. The cost audit is also in addition to the Section 143 audit.

Do members have to approve the cost auditor's remuneration?

Yes. Section 148(3) says the remuneration is determined by the members in the prescribed manner. In practice the Board fixes it and the members ratify it.

What is Form CRA-2?

It is the form the company files with the Registrar to inform it of the appointment of the cost auditor. The form and the time limit are set by the Cost Records and Audit Rules, so check them before the exam.