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

2 1. Letter of Availability 2. Board Resolution for Appointment 3. Letter of confirmation from Company with copy of CRA 2 4. Draft Cost Audit Strategy 5. Presentation of Cost Audit Strategy to Audit Committee 6. Preparation of Cost Audit Plan 7. Conversion of Cost Audit Plan to Progress Report Pre-Audit Preparation Steps KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Letter of Availability 3 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 Format KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

4 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 KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

5 Audit Strategy Initial Engagement Terms and Objectives Cost Audit Methodology Proposed Timelines and team contact Assurance, Independence and Communications Responsibilities Pre – requisite Documents List of Files for Company Draft Cost Audit Strategy KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

6 Engagement 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 Draft Cost Audit Strategy KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

7 Communications  SCA – Communication with Those Charged with Governance  SCA –Communicating Deficiencies in Internal Control to those charged with Governance and Management  SCA Fraud in an Audit of Cost Statements  Use of telephones, electronic messages, Cost Audit Plan and Progress documents Confidentiality  Similar to a Non Disclosure Agreement  Without altering / compromising responsibility to the shareholders and GOI  Exemptions for Companies Act, 2013 requirements Draft Cost Audit Strategy KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

8 Cost Audit Strategy  SCA 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 systems Cost Audit Approach  Based on Cost Audit Risk  Identification of Critical and non critical areas Draft Cost Audit Strategy KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

9 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 Draft Cost Audit Strategy KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

10 Proposed Timelines and Milestones KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS **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.

11 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 Draft Cost Audit Strategy KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

12 Pre-requisite documentation: 1. Articles of Association 2. Memorandum of Association 3. Certificate of Incorporation 4. Communication Document with details of Audit Committee and Board of Directors 5. Insider Trading avoidance Rules and Risk assessment procedure 6. Management Representation Letter with all input documents documents Draft Cost Audit Strategy KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

13 Files to be maintained by company KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS 1) Overhead Analysis File 2) RM consumption file 3) 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 file 6) Horizontal Cost Sheet 7) Cost Audit Report with specified annexures

14 Cost Audit Plan KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS Define the Cost Audit Structure Identify the scope Focus of problem areas Crash gates and milestones Avoid misunderstandings Identify key stakeholders Keep costs and timelines in check FORMAT

KIRIT MEHTA & COMPANY COST ACCOUNTANTS THANK YOU 15 KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS KIRIT MEHTA & ASSOCIATES COST ACCOUNTANTS