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CMA Final · Cost and Management Audit · Cost Audit Documentation, Audit Process and Execution

During the audit of a Gujarat-based chemical manufacturer, the Cost Auditor relied on a well-documented Bill of Materials but later found considerable use of substitute and alternate materials in actual production, revising his earlier risk assessment. Under SCA 102 guidance, how is this matter classified?

It is a significant matter. SCA 102 guidance treats a matter that causes the Cost Auditor to revise his previous assessment of the risks of material misstatement as significant, and cites substitute materials undermining reliance on a Bill of Materials as an example.

  1. AA significant matter, because it causes a revision of the previous assessment of risks of material misstatementCorrect
  2. BAn insignificant matter, because the Bill of Materials was well documented
  3. CA matter relevant only to the entity's management and not to documentation
  4. DA significant matter only if the cost statement is later qualified

Explanation

SCA 102 guidance states that matters causing revision of the Cost Auditor's previous risk assessment are significant matters, and uses this very Bill of Materials example. The existence of a good BOM does not make the matter insignificant.

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