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CMA Final · Cost and Management Audit · Cost Audit Programme

Which of the following best describes the 'preconditions for a cost audit' as defined in SCA 105 on agreeing the terms of cost audit engagements?

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 Central Government and filing of Form CRA-2
  2. BUse by management of an acceptable cost reporting framework for 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 and approval of accounts by shareholders
  4. DAvailability of ten years of past cost records and prior cost audit reports

Explanation

SCA 105 defines preconditions as the use 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 conducted. The other options describe appointment formalities or unrelated requirements not part of this definition.

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