Cost Audit:

As per provision to Section 148 (3) of the Companies Act 2013, cost audit has been made
mandatory for the organizations to conduct cost audit. The auditor conducting the cost audit
shall comply with the Cost Auditing Standards issued by the Institute of Cost Accountants of
India with the approval of Central Government.

As defined by the clause 42 of section 2, all the organizations engaged in the production of the
goods of product or services specified in Tables A & B, having an overall turnover of 35 crore or
more during the last financial year. Sectors under Table A are mentioned as the Regulated
sector and Table B is mentioned under Un Regulated Sector. Maintenance of cost records is
provided in CRA -1.

The principles as stated mentions the cost records format for the expense category of material
cost, employee cost, direct expenses, repair & maintenance, fixed assets, and depreciation,
overheads, transportation cost etc. The information is useful to indicate cost of product, cost of
sales and margin at which the organization is operating.

The organizations for which cost audit has been made mandatory are the organizations working
for the public good. Such services are listed under Public utility services. The firms involved in
the general competition are not desired to conduct cost audit as within the ambit of law.

Aim & Objective of Cost Audit

1. Proper preparation of cost records & records
2. Adherence to cost accounting plan
3. Effective tool of cost control
4. Protect interest of the consumers by ensuring the proper disclosure of cost and true
identification of selling price
5. Check wastage of material & labor
6. Highlight the deficiencies in production process and suggest to make people accountable
7. To facilitate inter firm comparison

Organizations under regulated sector include: When turnover of individual product is Rs. 50
crore or more and the aggregate turnover of all the products is 35crore or more

1. Electricity generation & Distribution

2. Petroleum Products
3. Arms and Ammunitions
4. fertilizers

Organizations under Non regulated Sector include: When turnover of individual product is Rs..
100 crore or more and the aggregate turnover of all the products is 35crore or more.
 1. Radar
2. Tanks
3. Propellers
4. Steel
5. Railway
6. Cement
7. Education
8. Edible
9. Health Products

Following are the Cost Auditing Standards:

1. Cost Auditing Standard-101 on Planning an audit of Cost Statements;

2. Cost Auditing Standard-102 on Cost Audit Documentation;

3. Cost Auditing Standard-103 on Overall objectives of the independent cost auditor;

4. Cost Auditing Standard-104 on Knowledge of business, its processes and the business
environment.

Further the ministry also in the process of approving 15 more standards and were sent to the
ministry for approval.

5. SCA-105: Agreeing the Terms of Cost Audit Engagements 2.

6. SCA-106: Audit Sampling

7. SCA-107: Audit Evidence

8. SCA-108 : Materiality in Planning and Performing Cost Audit

9. SCA-109: Cost Auditor’s Responsibility Relating to Fraud in an Audit of Cost Statements

10. SCA-110: Written Representations

11. SCA-111: Evaluation of Misstatements identified during the Cost Audit.

12. SCA-112: Analytical Procedures,

13. SCA-113: Using the Work of Internal Auditors

14. SCA-114: Using the Work of Cost Auditor’s Expert

15. SCA-115: Communication with Those Charged with Governance 16. SCA-116:
Communicating Deficiencies in Internal Control to Those Charged with Governance and
Management 17. SCA-117: Identifying and Assessing the Risks of Material Misstatement 18.
SCA-118: The Cost Auditor’s Response to the Assessed Report