What is audit?
The general definition of an audit is an evaluation of a person, organization, system,process, enterprise, project or product.
Cost audit is the audit of cost records. According to Chartered Institute of Management
Accountants, London (CIMA), cost audit is “the verification of the correctness of costaccounts and of the adherence to the cost accounting plan”. In other words, cost audit is
the verification of the cost of production of any product, service or activity on the basis of accounts maintained by an enterprise in accordance with the accepted principles of costaccounting.
What is cost audit?
According to the Institute of Cost and Management Accountants of England, cost auditrepresents the verification of cost accounts and a check on the adherence to costaccounting plan. Cost audit, therefore, comprises:
(a) verification of the cost accounting records such as the accuracy of the cost accounts,cost reports, cost statements, cost data and costing techniques, and(b) Examination of these records to ensure that they adhere to the cost accountingprinciples, plans, procedures and objectives.
Importance of cost audit
Management will get reliable data for its day-to-day operations like price fixing,control, decision-making, etc.ii.
A close and continuous check on all wastages will be kept through a proper systemof reporting to management.iii.
Inefficiencies in the working of the company will be brought to light to facilitatecorrection action.iv.
Management by exception becomes possible through allocation of responsibilitiesto individual managers