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CMA Final · Cost and Management Audit · Cost Audit Programme

Under SCA 105, which of the following correctly describes the preconditions for a cost audit?

The preconditions for a cost audit are that management uses an acceptable cost reporting framework to prepare the cost statements and agrees to the premises on which the cost audit is conducted. Appointment formalities, turnover limits or completion of the financial audit are not part of this definition.

  1. AUse by management of an acceptable cost reporting framework and agreement of management to the premises on which the cost audit is conductedCorrect
  2. BAppointment of the cost auditor by the Registrar of Companies and approval of the cost statements by the Board
  3. CAvailability of a quality review certificate and a turnover above a prescribed limit
  4. DCompletion of the financial audit and agreement by shareholders to the audit fee

Explanation

SCA 105 defines the preconditions as management using an acceptable cost reporting framework in preparing the cost statements and agreeing to the premises on which the audit is conducted. The other options introduce conditions not stated in the definition.

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