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Cost Audit and Assurance Standard on Overall Objectives of the Independent Cost Auditor and the Conduct of an Audit in Accordance with Standards on Auditing

CAAS - 103 - Rule - Companies Law - CAAS - 103 - CAAS - 103 The following is the Cost Audit and Assurance Standard (CAAS 103) on "Overall Objectives of the Independent Cost Auditor and the Conduct of an Audit in Accordance with Standards on Auditing". In this Standard, the standard portions have been set in bold italic type. This Standard should be read in the context of the background material, which has been set in normal type. Introduction 1. This Standard on Auditing deals with the .....

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;the Cost auditor" hereafter. Objectives 2. The objective of issuing this Standard is to lay down the principles governing the Audit of Cost Statements. The objective of an audit of Cost Statements is to enable the auditor to express an opinion whether the Cost Statements are prepared, in all material respects, in accordance with an applicable Cost reporting framework and give a true and fair view of the Cost of a product, activity or service. In the case of a Cost Audit under the Cost Audi .....

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port prescribed by law in India. The Cost Auditor expresses an opinion on them. The CAASs do not in any way alter this responsibility of the management or the governing body. As part of their responsibility for the preparation and presentation of the cost statements, management and, where appropriate, those charged with governance are responsible for: • The identification of the applicable cost reporting framework, in the context of any relevant laws or regulations. • The preparation a .....

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ings. Where reasonable assurance cannot be obtained, the cost Auditor should qualify the opinion and in extreme cases disclaim an opinion. The objective may extend to making observations and suggestions where required by regulations e.g. Cost Audit Report Rules. Scope 3. This Standard should be applied while undertaking audit of Cost Statements that require attestation. It also describes management responsibility for the preparation and presentation of the Cost Statement, to identify the Cost Re .....

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nd other related information of an entity whether profit oriented or not, irrespective of its size or legal form, when such an examination is conducted with a view to expressing an opinion thereon. 4.2 Auditee: Auditee means a company or any other entity for which cost audit and/ or certification is carried out. 4.3 Auditor: Auditor is used to refer to the person or persons conducting the audit, usually the engagement partner or other members of the engagement team, or, as applicable the firm. A .....

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terial, either individually or when aggregated with other misstatements, before consideration of any related controls. b. Control risk: The risk that a misstatement that could occur in an assertion about the measurement, assignment or disclosure of cost and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity's internal, operational and management control. c. Detection risk: .....

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against criteria. The outcome of the evaluation or measurement of a subject matter is the information that results from applying the criteria. There are two types of assurance engagements a practitioner is permitted to perform : a reasonable assurance engagement and a limited assurance engagement. 4.5.1 Reasonable assurance engagement: The objective of a reasonable assurance engagement is a reduction in assurance engagement risk to an acceptably low level in the circumstances of the engagement a .....

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ner expresses an inappropriate conclusion when the subject matter information is materially misstated. 4.7 Audit Strategy: Audit Strategy sets the scope, timing and direction of the audit, and guides the development of the detailed audit plan. 4.8 Cost Audit : Cost audit is an independent examination of cost and other related information in respect of a product or group of products of an entity whether profit oriented or not, irrespective of its size or legal form, when such an examination is co .....

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ertificate of practice under subsection (1) of section 6 and who is deemed to be in practice under subsection (2) of section 2 of that Act and includes a firm of cost accountants. 4.10 Engagement Partner: Engagement partner means the partner or other person in the firm who is a member of the Institute of Cost Accountants of India and is in full time practice and is responsible for the engagement and its performance, and for the report that is issued on behalf of the firm, and who, where required .....

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between the amount, classification, presentation or disclosure of a reported cost statement item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable cost reporting framework. Misstatements can arise from error or fraud. Where the cost auditor expresses an opinion on whether the cost statements give a true and fair view, misstatements also include those adjustments of amounts, classifications, presentation, or disclosu .....

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in the name of, the entity, or on its behalf, by those charged with governance, management or employees. Non-compliance does not include personal misconduct (unrelated to the business activities of the entity) by those charged with governance, management or employees of the entity. 5. Requirements 5.1 The cost auditor should comply with the relevant ethical requirements including those pertaining to independence in respect of cost audit engagements.(refer 6.1) 5.2 The cost auditor should comply .....

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to the audit when the CAAS is in effect and the circumstances addressed by the CAAS exist. 5.4 The cost auditor should not represent compliance unless the auditor has complied fully with all of the Cost Audit and Assurance Standards and Statement on Generally Accepted Cost Audit and Assurance Principles and Practices (GACAAP) relevant to the audit. (refer 6.2) 5.5 The cost auditor should plan and perform an audit with an attitude of professional skepticism recognizing that circumstances may exis .....

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y management in preparing the Cost Statements is acceptable. (refer 6.5) 5.9 The cost auditor shall not be required to perform audit procedures regarding the entity's compliance with laws and regulations governing cost audit in the absence of identified or suspected non-compliance. (refer 6.6) 6. Application Guidance: 6.1 Audit and Ethics (refer 5.1) : The cost auditor should comply with relevant ethical requirements as per Code of Ethics of the Institute of Cost Accountants of India. This c .....

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or's independence from the entity safeguards the cost auditor's ability to form an opinion without being affected by influences that might compromise that opinion. The provision of services for maintenance of cost records, design and implementation of Cost Systems and internal audit are considered to erode the independence. 6.2 Conduct of audit : (refer 5.2, 5.3 and 5.4) 6.2.1 The Cost Audit and Assurance Standards and Statement on Generally Accepted Cost Audit and Assurance Principles a .....

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override law or regulations that govern audit process. The cost auditor may also conduct the audit in accordance with both CAAS AND GACAAPs and legislative and regulatory requirements. In such cases in addition to complying with each of the CAAS and GACAAP relevant to the cost audit, it may be necessary for the cost auditor to perform additional audit procedures in order to comply with the legislative and regulatory requirements The form of the cost auditor's opinion will depend upon the app .....

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(refer 5.5) An attitude of professional skepticism means the cost auditor makes a critical assessment, with a questioning mind, of the validity of audit evidence obtained and be alert to audit evidence that contradicts or brings into question the reliability of documents and responses to inquiries and other information obtained from management and those charged with governance. An attitude of professionalism is necessary throughout the cost audit process for the auditor to reduce the risk of ov .....

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ly, representations from management are not a substitute for obtaining sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the cost auditor's opinion. 6.3.1 A cost auditor conducting an audit in accordance with CAAS AND GACAAP obtains reasonable assurance that the Cost Statements taken as a whole are free from material misstatement, whether due to fraud or error. Reasonable assurance is a concept relating to the accumulation of the audit evidence .....

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(for example, the possibility of management override or collusion). • The fact that most audit evidence is persuasive rather than conclusive. Also, the work undertaken by the cost auditor to form an audit opinion is permeated by judgment, in particular regarding: (a) The gathering of audit evidence, for example, in deciding the nature, timing and extent of audit procedures; and (b) The drawing of conclusions based on the audit evidence gathered, for example, assessing the reasonableness of .....

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se the risk of material misstatement beyond that which would ordinarily be expected; or (b) Any indication that a material misstatement has occurred. Accordingly, because of the factors described above, an audit is not a guarantee that the Cost Statements are free from material misstatement, because absolute assurance is not attainable. Further, an audit opinion does not assure the future viability of the entity nor the efficiency or effectiveness with which management has conducted the affairs .....

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risks that may affect the cost statements. 6.4.1 The cost auditor obtains and evaluates audit evidence to obtain reasonable assurance about whether the Cost Statements give a true and fair view or in accordance with the applicable cost reporting framework. The concept of reasonable assurance acknowledges that there is a risk the audit opinion is inappropriate. The risk that the cost auditor expresses an inappropriate audit opinion when the Cost Statements are materially misstated is known as &q .....

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the Cost Statements are materially misstated prior to audit) and the risk that the auditor will not detect such misstatement ("detection risk"). The cost auditor performs audit procedures to assess the risk of material misstatement and seeks to limit detection risk by performing further audit procedures based on that assessment. The audit process involves the exercise of professional judgment in designing the audit approach, through focusing on what can go wrong (i.e., what are the pot .....

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material to the Cost Statements taken as a whole. Materiality and audit risk are related. In order to design audit procedures to determine whether there are misstatements that are material to the cost statements taken as a whole, the cost auditor considers the risk of material misstatement at two levels: • the overall cost statement level and • in relation to cost heads, items of cost and disclosures and the related assertions. 6.4.4 The cost auditor considers the risk of material miss .....

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all risk represents circumstances that increase the risk that there could be material misstatements in any number of different assertions, for example, through management override of internal control. Such risks may be especially relevant to the cost auditor's consideration of the risk of material misstatement arising from fraud. The auditor's response to the assessed risk of material misstatement at the overall cost statement level includes consideration of the knowledge, skill, and abi .....

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s, items of cost, and disclosure level in such a way that enables the auditor, at the completion of the audit, to express opinion on the Cost Statements taken as a whole at an acceptably low level of cost audit risk. Auditors use various approaches to accomplish that objective. The discussion in the following paragraphs provides an explanation of the components of audit risk. 6.4.6 The risk of material misstatement at the assertion level consists of two components as follows: • "Inhere .....

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bject to significant measurement uncertainty pose greater risks than do cost heads consisting of relatively routine, factual data. • External circumstances giving rise to business risks may also influence inherent risk. For example, technological developments might make a cause changes to a manufacturing process rendering the existing classification of variable and fixed costs inappropriate and cause product contribution to be misstated.. In addition to those circumstances that are peculiar .....

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er individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity's internal control. That risk is a function of the effectiveness of the design and operation of internal control in achieving the entity's objectives relevant to preparation of the entity's Cost Statements. Some control risk will always exist because of the inherent limitations of internal control. • Inherent risk and control risk are the .....

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ment. The CAAS AND GACAAPs do not ordinarily refer to inherent risk and control risk separately, but rather to a combined assessment of the "risk of material misstatement." Although the CAAS AND GACAAPs ordinarily describe a combined assessment of the risk of material misstatement, the auditor may make separate or combined assessments of inherent and control risk depending on preferred audit techniques or methodologies and practical considerations. The assessment of the risk of materia .....

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ion of the effectiveness of an audit procedure and of its application by the auditor. Detection risk cannot be reduced to zero because the auditor usually does not examine all of cost heads, items of cost, or disclosure and because of other factors. Such other factors include the possibility that a cost auditor might select an inappropriate audit procedure, misapply an appropriate audit procedure, or misinterpret the audit results. These other factors ordinarily can be addressed through adequate .....

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nt at the assertion level. The greater the risk of material misstatement the auditor believes exists, the less the detection risk that can be accepted. Conversely, the less risk of material misstatement the auditor believes exist, the greater the detection risk that can be accepted. 6.5 Responsibility for the Cost Statements (refer 5.8) the cost auditor is responsible for forming and expressing an opinion on the Cost Statements. The term "Cost Statements" refers to a structured represe .....

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