Cost Audit: Law, Standards and the Cost Audit Report — Practice

Question 1

What overall turnover threshold triggers mandatory maintenance of cost records?

Accepted Answer

Rs. 35 crore or more in the immediately preceding financial year.

Question 2

Within how many days of the start of the financial year must the Board appoint the cost auditor?

Accepted Answer

180 days.

Question 3

In which form does the cost auditor submit the cost audit report to the Board?

Accepted Answer

Form CRA-3.

Question 4

A regulated-sector company has overall turnover of Rs. 45 crore and product turnover of Rs. 30 crore. Is mandatory cost audit applicable?

Accepted Answer

No — although the product turnover of Rs. 30 crore exceeds the Rs. 25 crore regulated threshold for that test, the overall company turnover of Rs. 45 crore falls below the required Rs. 50 crore overall threshold, so both conditions are not met together and mandatory cost audit does not apply.

Question 5

A company's financial year begins 1 July. The Board appoints the cost auditor at a meeting on 1 December of the same year. By what date must Form CRA-2 be filed?

Accepted Answer

The earlier of 30 days from the Board meeting (1 December + 30 days = 31 December) or 180 days from 1 July (approximately 27 December). Since 27 December is earlier, CRA-2 must be filed by approximately 27 December.

Question 6

Name the four currently mandatory Cost Auditing Standards.

Accepted Answer

SCA-101 (Planning an Audit of Cost Statements), SCA-102 (Cost Audit Documentation), SCA-103 (Overall Objectives of the Independent Cost Auditor), SCA-104 (Knowledge of Business, its Processes and Business Environment).

Question 7

A company's financial year ends 31 March. The cost auditor, due to a delay, submits Form CRA-3 to the Board on 20 October (after the 180-day deadline of approximately 27 September). Explain the compliance consequence, and state by when the company must still file Form CRA-4 once it does receive the report.

Accepted Answer

The cost auditor has breached the 180-day CRA-3 submission deadline (a compliance failure attributable to the auditor), which can attract regulatory consequences for the auditor and the company alike. Regardless of this delay, once the company actually receives the CRA-3 report on 20 October, its own separate 30-day clock for filing Form CRA-4 with the Central Government begins running from that receipt date, requiring CRA-4 to be filed by approximately 19 November — the company's CRA-4 obligation is triggered by actual receipt of CRA-3, not by the original 180-day deadline that the auditor missed.

Question 8

Explain the policy reasoning for having two separate turnover tests (overall company turnover AND specific product/service turnover) for mandatory cost audit, rather than a single overall-turnover test alone.

Accepted Answer

A single overall-turnover test would either force cost audit on every product line of a very large, diversified company (even lines that are individually small and where a full cost audit would be disproportionately burdensome relative to that line's size), or would exempt an entire large company from cost audit obligations if it happened to have modest overall turnover despite one specific product or service being individually large and cost-audit-relevant. The two-part test targets cost audit specifically at product or service lines that are individually significant (meeting their own threshold) within companies that are also overall significant in size (meeting the overall threshold), avoiding both of these mismatches.

Practice — Cost Audit: Law, Standards and the Cost Audit Report

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