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

During the cost audit of a steel plant, the auditor initially relied on a well documented Bill of Materials but later found extensive use of substitute and alternate materials in actual production. Under SCA 102, how should this be treated?

It is a significant matter. SCA 102 treats a matter that causes the cost auditor to revise the earlier assessment of risks of material misstatement as significant, and cites heavy use of substitute materials despite a documented Bill of Materials as an example. It must therefore be documented with conclusions.

  1. ANot a significant matter, since the Bill of Materials was well documented
  2. BA significant matter, because it causes a revision of the auditor's earlier assessment of risks of material misstatementCorrect
  3. CSignificant only if the company is a smaller entity
  4. DSignificant only if the management asks for it to be recorded

Explanation

SCA 102 gives this very situation as an example: a matter that causes a revision of the cost auditor's previous assessment of the risks of material misstatement is a significant matter. The existence of a documented Bill of Materials does not neutralise it, and entity size or management's request is irrelevant.

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