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CMA Final · Cost and Management Audit · Cost Audit Programme

Under SCA 105 on agreeing the terms of cost audit engagements, what is meant by the 'preconditions for a cost audit'?

Preconditions for a cost audit are the use by management of an acceptable cost reporting framework in preparing the cost statements and management's agreement to the premises on which the cost audit is conducted, as defined in SCA 105.

  1. AAppointment of the cost auditor by the shareholders and payment of fees in advance
  2. BUse by management of an acceptable cost reporting framework in preparing the cost statements, and management's agreement to the premises on which a cost audit is conductedCorrect
  3. CCompletion of the financial audit by the statutory auditor before the cost audit begins
  4. DSubmission of the cost audit programme to the Board by the cost auditor for approval

Explanation

SCA 105 defines preconditions as management's use of an acceptable cost reporting framework for the cost statements and its agreement to the premises on which a cost audit is conducted. The other options describe matters not in this definition.

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