CMA Intermediate · Corporate Accounting and Auditing
Cost Audit for CMA Intermediate Corporate Accounting and Auditing
Cost audit is the audit of a company's cost records by a cost accountant. Under Section 148 of the Companies Act, 2013, the Central Government may order it for prescribed classes of companies. To solve questions, link each point to the section: who orders it, who appoints the auditor, to whom the report goes, and the time limits.
What this chapter covers
This chapter covers the audit of cost records. It starts with what cost audit means and why it exists. It then moves to Section 148 of the Companies Act, 2013, which is the legal base. After that come the cost records a company must keep, the cost auditor's appointment, rights and duties, the cost audit programme and report, and the cost auditing standards.
Most of the chapter is law-based, so you must learn the wording of Section 148 with care. The section has eight sub-sections, and each answers a different exam question: who orders the audit, who conducts it, who cannot be appointed, to whom the report is submitted, and what happens on default.
In the paper, this chapter sits beside statutory audit under Section 143. The key link is that cost audit is an additional audit and does not replace the financial audit. It also connects to your Cost Accounting paper, because the cost records being audited are the ones you learn to prepare there.
Cost audit is a compact, rule-based chapter, so it is a good place to score. Questions are often direct: MCQs on who appoints the cost auditor, who receives the report, or who cannot be appointed, and short written answers on duties, the report and standards. Once you know Section 148 well, these answers become repeatable and easy to structure for step marks. Students who skip it lose marks that other chapters, which need heavy calculation, cannot give back so cheaply.
Cost Audit: topics in the order to study them
- 1Cost Audit: Meaning, Objectives and ScopeStart with what cost audit is and how it differs from financial audit, so the later legal rules make sense.
- 2Statutory Provisions: Section 148 and Cost Audit RulesThis is the core of the chapter. Everything else, from records to the report, flows from this section.
- 3Cost Records and Maintenance RequirementsSection 148(1) requires cost particulars in the books, so learn what records exist before learning how they are audited.
- 4Appointment, Rights and Duties of Cost AuditorOnce you know what is audited, study who audits it, how that person is appointed and what powers and duties apply.
- 5Cost Audit Programme and Cost Audit ReportThis shows how the audit is planned and reported, and it builds on the auditor's duties and the submission rules.
- 6Cost Auditing Standards and Compliance ReportingFinish with the standards the auditor must follow and the compliance steps, which tie the whole chapter together.
How to prepare Cost Audit
Treat this as a law chapter with a practical layer. Learn the section first, then attach the practice around it.
- Read the meaning and objectives of cost audit and write a three-line difference between cost audit and financial audit.
- Learn Section 148 sub-section by sub-section. For each one, write a one-line summary in your own words: (1) cost particulars in books, (2) audit order, (3) appointment, (4) additional to Section 143, (5) rights and duties, (6) report to Central Government within thirty days, (7) further information, (8) default.
- Make a short list of key facts: the Board appoints the cost accountant, members determine the remuneration, and the company's Section 139 auditor cannot be appointed for cost audit.
- Study cost records and the cost audit programme with a simple layout in mind: purpose, what is checked, who does it, and what is reported.
- Practise the cost audit report format: state who prepares it, to whom it is submitted, and what the company must do after receiving it.
- Solve MCQs on each sub-section, then write two or three short answers from memory, such as the duties of a cost auditor, and check them against the Act.
- On the last day, re-read your one-line summaries and the cost auditing standards points.
Common mistakes in Cost Audit
Saying the cost auditor submits the report to the Central Government.
Fix: Remember the two steps: the cost accountant submits the report to the Board, and then the company furnishes it to the Central Government within thirty days of receipt.
Treating cost audit as a replacement for statutory audit.
Fix: Write that cost audit is in addition to the audit under Section 143, and that the two have different scope and appointees.
Allowing the statutory auditor to also be the cost auditor.
Fix: Recall the first proviso to Section 148(3): a person appointed as auditor under Section 139 cannot be appointed for cost audit.
Stating that cost audit applies to every company.
Fix: Say that it applies only to prescribed classes of companies, by order of the Central Government, subject to prescribed net worth or turnover.
Confusing who appoints the cost auditor and who fixes the remuneration.
Fix: Write: the Board appoints, and the members determine the remuneration in the prescribed manner.
Writing long general answers with no section references on written questions.
Fix: Structure answers by sub-section, quote the key points in your own words, and add section numbers only where you are sure of them.
Last-day revision: Cost Audit
- Section 148(1): the Central Government may, by order, direct that particulars of material, labour or other cost items be included in the books of prescribed classes of companies.
- Section 148(2): the Central Government may order a cost records audit for covered companies with a prescribed net worth or turnover.
- The cost audit is conducted by a cost accountant appointed by the Board.
- The remuneration of the cost auditor is determined by the members in the prescribed manner.
- A person appointed as auditor under Section 139 cannot be appointed for the cost audit of the same company.
- The cost auditor must comply with the cost auditing standards.
- Cost auditing standards are issued by the Institute of Cost Accountants of India with the approval of the Central Government.
- Cost audit is in addition to the audit under Section 143. It does not replace it.
- The cost auditor submits the report to the Board of Directors of the company.
- The company must furnish the cost audit report to the Central Government within thirty days of receiving it, with full information and explanation on every reservation or qualification.
- The Central Government may call for further information, which the company must give within the time it specifies.
- On default, the company and its officers in default are punishable under Section 147(1), and the cost auditor under Section 147(2) to (4).
Cost Audit practice questions
- Section 148 separates the requirement to include cost particulars in books from the requirement of a cost audit. Which statement correctly r…
- A company receives a copy of the cost audit report prepared under a direction under Section 148(2) on 12 March. By which date must it furnis…
- Under section 148(1) of the Companies Act, 2013, the Central Government may direct that certain particulars be included in the books of acco…
- Before issuing an order under section 148(1) for a class of companies regulated under a special Act (for example, a banking or insurance reg…
- Under the Companies Act, 2013, to whom does the cost auditor submit the report on the audit of cost records?
- Which of the following is correctly stated under Section 148 of the Companies Act, 2013?
- Which statement about the relationship between a cost audit under section 148 and the audit under section 143 is correct?
- Under section 148, to whom does the cost accountant submit the report on the audit of cost records, and within what time must the company fu…
Cost Audit in other exams
The same ground in other exams, if you are preparing for more than one or want another angle on it.
Cost Audit: frequently asked questions
What is cost audit under Section 148 of the Companies Act, 2013?
It is an audit of cost records that the Central Government may order for prescribed classes of companies. The audit is conducted by a cost accountant appointed by the Board. It is in addition to the audit under Section 143.
Can the statutory auditor be appointed as cost auditor?
No. The proviso to Section 148(3) says that a person appointed under Section 139 as an auditor of the company cannot be appointed to audit its cost records. The cost auditor must be a cost accountant.
To whom does the cost auditor submit the report?
The cost accountant submits the report to the Board of Directors of the company. The company then furnishes a copy to the Central Government within thirty days of receiving it, along with full information and explanation on every reservation or qualification.
Who issues the cost auditing standards?
The Institute of Cost Accountants of India issues them, with the approval of the Central Government. Section 148(3) requires the cost auditor to comply with them.
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).