BY: CMA SUKRUT MEHTA KIRIT MEHTA COMPANY COST ACCOUNTANTS Pre-Audit Preparation and Documentation 1

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BY:CMA SUKRUT MEHTA

KIRIT MEHTA & COMPANYCOST ACCOUNTANTS

Pre-Audit Preparation and Documentation

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1. Letter of Availability2. Board Resolution for Appointment3. Letter of confirmation from Company with

copy of CRA 24. Draft Cost Audit Strategy5. Presentation of Cost Audit Strategy to Audit

Committee6. Preparation of Cost Audit Plan7. Conversion of Cost Audit Plan to Progress

Report

Pre-Audit Preparation Steps

KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

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Letter of Availability

From the Auditor and addressed to Board of Directors

Mention activities to be covered and period of Audit

Eligibility under section 148(3) of the Companies Act, 2013

Not exceeding number of audits under permitted under section 141(3)(g) of the Companies Act, 2013

Independence and Arm’s Length with the company

FormatKIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

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Board Resolution must not be a circular resolution

It must explicitly mention the name of the auditor, activities to be undertaken and period of audit

CRA 2 and Letter of appointment must be shared within 180 days of commencement of the year

The fees of the Cost Auditor must be ratified in the Annual General Meeting of the company

Format for Letter of Appointment

Board Resolution, form CRA 2 & Letter of Appointment


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Audit Strategy Initial EmailEngagement Terms and ObjectivesCost Audit MethodologyProposed Timelines and team contactAssurance, Independence and

CommunicationsResponsibilitiesPre – requisite DocumentsList of Files for Company

Draft Cost Audit Strategy


6Engagement Terms

Letter & Date of Appointment with CRA 2 Compliance with SCA 101 Planning an Audit of Cost

Statements and SCA 105 – Terms of Cost Audit Engagement

Objectives Comply with the rules and procedures as specified in the

Companies (Cost Records and Audit) Rules, 2014 CRA 1, Standards Cost Auditing, Cost Accounting Standard

and Generally Accepted Cost Accounting Principles Other Areas & Performance Appraisal Report Identify material misstatements or deficiencies in the

internal controls and processes



7Communications

SCA – Communication with Those Charged with Governance

SCA –Communicating Deficiencies in Internal Control to those charged with Governance and Management

SCA 109 - Fraud in an Audit of Cost Statements Use of telephones, electronic messages, Cost Audit Plan

and Progress documentsConfidentiality

Similar to a Non Disclosure Agreement Without altering / compromising responsibility to the

shareholders and GOI Exemptions for Companies Act, 2013 requirements



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Cost Audit Strategy SCA 104 - Knowledge of Business, its Process and

Business Environment Cost Audit Risks to material errors & misstatements Review the company’s Internal Financial and Cost

Control systems Verifying all cost statements and management

control systemsCost Audit Approach

Based on Cost Audit Risk Identification of Critical and non critical areas



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Use of Internal Management data Evaluate the design of the company’s internal control

systems and identify associated risks which could lead to material errors or inefficiencies

All formal recommendations will be included in our final report to the management

Materiality SCA 106 – Audit Sampling SCA 108 – Materiality in Planning and Performing Cost

Audit Any errors greater than 1% of the aggregate will be

assessed, discussed and duly recorded for as a potential misstatement



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Proposed Timelines and Milestones


Activity Date Appointment of Cost Auditor in Board Letter of Appointment to Cost Auditor Adoption of Cost Audit Strategy Finalization of Cost Audit Plan Compilation of Cost records Audit and Review by Cost Auditor Key issues discussion with Management Preparation of Performance Appraisal Report Report Submission to Audit Committee Adoption of records in Board Filing of Cost Records with MCA**

**Please note that under the Companies (Cost Records and Audit Rules, 2014, filing of the Cost Records to MCA vide form 1 is the sole responsibility of the company and this exercise needs to be completed within 30 days from adoption of Cost Records by the Board of Directors.

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Cost Audit Team – should mention all assignees to the Audit team from the Audit Firm along with designation and contact details

Assurance - all relevant laws, rules, regulation, procedures and guidelines issued by either the MCA or the Institute of Cost Accountants of India

Independence – Arms’ Length of partners, Audit Team, fees and extent of dependence

Responsibility – Risks, Compliances, Reporting, document management and disclosures



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Pre-requisite documentation:1. Articles of Association2. Memorandum of Association3. Certificate of Incorporation4. Communication Document with details of Audit

Committee and Board of Directors5. Insider Trading avoidance Rules and Risk

assessment procedure6. Management Representation Letter with all input

documents



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Files to be maintained by company


1) Overhead Analysis File2) RM consumption file3) Stock Statement file for both RM and FG

(both manufactured and purchased)4) Manufactured stock consumption file (with

special focus to support CAS 4)5) Customer wise & product wise Sales, product

usage, transportation and direct cost file6) Horizontal Cost Sheet7) Cost Audit Report with specified annexures

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Cost Audit Plan


Define the Cost Audit StructureIdentify the scopeFocus of problem areasCrash gates and milestonesAvoid misunderstandingsIdentify key stakeholdersKeep costs and timelines in checkFORMAT

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KIRIT MEHTA & COMPANYCOST ACCOUNTANTS

THANK YOU


KIRIT MEHTA & ASSOCIATES

COST ACCOUNTANTS

[email protected]; +91 98333 93398

mailto:[email protected]