Cost Audit and Compliance Reporting
What is audited
Section 148(2) makes cost audit additional to the statutory audit under Section 143; it neither replaces nor duplicates it. The cost auditor examines cost records and opines on their accuracy and compliance with Cost Accounting Standards.
Appointment and forms
- The Board appoints a cost accountant in practice on the audit committee's recommendation within 180 days of the financial year's start; remuneration needs shareholder approval.
- Form CRA-2 records the appointment; the auditor's report is Form CRA-3; the company files Form CRA-4 with the Registrar within 30 days of receiving the signed report.
- The cost auditor cannot be the statutory auditor, and Section 141 disqualifications apply.
Opinion, not arithmetic
The report carries an unqualified or qualified opinion, an annexure with product-wise cost details, and observations on variances, capacity utilisation and cost efficiency. Qualifications must be specific and quantified.
Worked example
An auditor finds fixed overhead absorbed on 5,000 actual units against normal capacity of 8,000, lifting inventory by ₹3,00,000. Correct treatment is absorption on normal capacity with idle-capacity cost disclosed separately. The auditor quantifies the ₹3,00,000 overstatement in the annexure, qualifies the opinion and reports the CAS 2 non-compliance; the board must respond in the report filed in CRA-4.
Compliance failures
Section 148(5) penalises default by the company and its officers. The auditor also faces ICMAI disciplinary action for accepting an ineligible appointment or signing without adequate evidence.
Traps
- Filing CRA-4 in place of CRA-3, or missing the 30-day clock.
- Reporting a qualification without quantifying its effect.
- Accepting an appointment where the firm is also internal auditor.