Corporate Accounting and Auditing · Cost Audit

Appointment, Rights and Duties of a Cost Auditor under Section 148

Updated 10 October 2026 · Fact-checked

A cost auditor is a cost accountant appointed by the Board under Section 148 to audit the cost records of companies the Central Government has directed. The members decide the remuneration. The statutory auditor cannot be appointed. The cost auditor reports to the Board and has the rights and duties of an auditor, so far as applicable.

Understand Appointment, Rights and Duties of Cost Auditor

Some companies must keep cost records. The Central Government can order this for companies in certain industries (Section 148(1)). For companies with a prescribed net worth or turnover, it can also order an audit of those cost records (Section 148(2)). The person who does this audit is the cost auditor.

The cost auditor must be a cost accountant. The Board appoints the cost auditor. The remuneration is fixed by the members in the manner prescribed (Section 148(3)). So the Board appoints, but the members decide the fee. Students often reverse this.

There is one firm bar. A person appointed under Section 139 as the company's auditor cannot be appointed to audit its cost records. The cost auditor must also follow the cost auditing standards, which are issued by the Institute of Cost Accountants of India with the approval of the Central Government.

A cost audit is in addition to the audit under Section 143 (Section 148(4)). It does not replace the statutory audit. The qualifications, disqualifications, rights, duties and obligations of auditors under the Chapter apply to the cost auditor so far as they can apply (Section 148(5)). The company must give the cost auditor all assistance and facilities.

The cost auditor submits the report to the Board of Directors, not directly to the Central Government. The company then sends a copy of the report to the Central Government within thirty days of receiving it, with full information and explanation on every reservation or qualification (Section 148(6)). The Central Government may ask for more information (Section 148(7)).

Key rules to remember

Who appoints and who is eligible: Cost auditor = cost accountant, appointed by the Board; Section 148(3). A Section 139 statutory auditor of the company cannot be appointed as cost auditor.
Remuneration: Board appoints; members determine remuneration in the prescribed manner; Section 148(3). Do not write that the Board fixes the fee on its own.
Standards to follow: Cost auditor must comply with cost auditing standards; Standards are issued by the Institute of Cost Accountants of India with Central Government approval.
Relation to statutory audit: Cost audit is in addition to the Section 143 audit; Section 148(4).
Reporting line: Cost auditor → Board of Directors; company → Central Government within 30 days of receiving the report; Section 148(5) proviso and 148(6). The company must explain every reservation or qualification.
Rights and duties: Auditor's qualifications, disqualifications, rights, duties and obligations apply so far as applicable; Section 148(5). The company must give all assistance and facilities.
Penalty for default: Company and officers in default: Section 147(1). Cost auditor in default: Section 147(2) to (4); Section 148(8).

How to solve Appointment, Rights and Duties of Cost Auditor questions

Use this method for any question on the appointment, rights, duties or disqualification of a cost auditor.

1Identify what is asked: appointment, remuneration, rights, duties, reporting or disqualification.
2State the starting point: the Central Government orders cost records and cost audit for prescribed classes of companies, and the company falls within such a class.
3Name the appointing authority: the Board appoints a cost accountant. The members determine the remuneration in the prescribed manner.
4Check eligibility and disqualification: a Section 139 auditor of the company cannot be the cost auditor. Apply the auditor disqualifications of Section 141(3) so far as applicable.
5State the rights and duties by linking to the auditor provisions, and mention the company's duty to give assistance and facilities.
6State the reporting chain: report to the Board, then the company sends a copy to the Central Government within thirty days with explanations.
7Add the consequence of default and conclude with a clear answer to the question asked.

Quickest way: A-R-R-P memory chain

When to use it: Use it for theory questions of 4 to 6 marks and for MCQs on who does what.

A: Appointment. Board appoints a cost accountant. Statutory auditor is barred.
R: Remuneration. Members determine it in the prescribed manner.
R: Report. To the Board. Company files a copy with the Central Government within 30 days.
P: Penalty. Section 147 applies to the company, its officers and the cost auditor.
For MCQs, test each option against these four points and reject any that swap the Board and the members.

Common mistakes in Appointment, Rights and Duties of Cost Auditor

Writing that the members appoint the cost auditor and the Board fixes the fee.
It is confused with statutory auditor appointment, where members appoint.
Fix: Remember: the Board appoints the cost auditor, and the members determine the remuneration.
Allowing the company's statutory auditor to also do the cost audit.
Students assume one professional can do both audits.
Fix: The first proviso to Section 148(3) bars a person appointed under Section 139 from the cost audit.
Saying the cost auditor submits the report to the Central Government.
The Central Government orders the audit, so it seems the report goes there.
Fix: The cost auditor reports to the Board. The company then furnishes the report to the Central Government within thirty days.
Treating cost audit as a substitute for statutory audit.
Both are audits of the same company.
Fix: Section 148(4) says cost audit is in addition to the Section 143 audit.
Stating rights and duties from memory with no link to the Act.
Section 148 has no separate list of rights and duties.
Fix: Say that the rights, duties and disqualifications of auditors apply so far as applicable under Section 148(5). Then list the main ones, such as access to records, and note they are applied as relevant.

Worked examples

Example 1

Sunrise Textiles Ltd is covered by a Central Government order for cost audit. The Board proposes to appoint Mr Rao, the company's statutory auditor under Section 139, as cost auditor, and to fix his fee itself. Advise the company.

Show the solution

Section 148(3) requires the cost auditor to be a cost accountant appointed by the Board.
The first proviso says a person appointed under Section 139 as the company's auditor cannot be appointed for the audit of cost records.
So Mr Rao cannot be appointed, even if he is otherwise qualified.
Remuneration is determined by the members in the prescribed manner, so the Board cannot fix it on its own.

Answer: The proposal is invalid. Mr Rao cannot be cost auditor because he is the Section 139 auditor. A separate cost accountant must be appointed by the Board, and the members must determine the remuneration.

Example 2

Explain the reporting procedure after a cost auditor completes the audit under Section 148, and state what happens if the company defaults.

Show the solution

The cost auditor submits the report to the Board of Directors (proviso to Section 148(5)).
The company receives a copy of the cost audit report.
Within thirty days of receipt, the company must furnish the Central Government with the report, with full information and explanation on every reservation or qualification (Section 148(6)).
If the Central Government needs more, it may call for further information and explanation, and the company must give it within the time specified (Section 148(7)).
On default, the company and every officer in default are punishable as provided in Section 147(1). The cost auditor in default is punishable under Section 147(2) to (4) (Section 148(8)).

Answer: Report goes to the Board first. The company then files it with the Central Government within thirty days with explanations on every qualification. Default attracts Section 147 penalties for the company, its officers and the cost auditor.

Exam tips

Learn the Board versus members split: Board appoints, members decide remuneration. It is a favourite MCQ trap.
Quote Section 148(3) for appointment and eligibility, 148(4) for the addition to statutory audit, 148(6) for the thirty-day filing, and 148(8) for penalties.
In written answers, use short headed points for appointment, remuneration, rights and duties, reporting and penalty. Each point earns a step mark.
For disqualification questions, link to Section 141(3) and apply only the grounds that fit, such as being an officer or employee of the company.
MCQs have no negative marking, so attempt every one.

Practice questions from Cost Audit

Appointment, Rights and Duties 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, Rights and Duties of Cost Auditor: frequently asked questions

Who appoints the cost auditor and who fixes the remuneration?

The Board appoints the cost auditor. The remuneration is determined by the members in the manner prescribed (Section 148(3)). Both steps are needed for a valid appointment.

Can the statutory auditor also be the cost auditor?

No. A person appointed under Section 139 as the company's auditor 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 auditor submits the report to the Board of Directors. The company must then send a copy to the Central Government within thirty days of receiving it, with explanations on every reservation or qualification.

Do the rights and duties of a statutory auditor apply to the cost auditor?

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