COST AUDIT

INTRODUCTION
It is the detailed checking of the costing system, technique
and accounts to verify their correctness and to ensure
adherence to the objective of cost accountancy.-ICMA
LONDON
An audit of efficiency ,minute details of expenditure while
the work is in progress and not a post mortem .cost audit
is mainly a preventive measure ,a guide for management
policy and decision ,in addition to being barometer of
performance - ICWAI INDIA

OVERVIEW
India was the first country in South Asia (and perhaps in the

world) to make cost audit mandatory for some of its business

sectors. The Institute of Cost and Works Accountants of India
(ICWAI) refers to cost audit as an audit of efficiency of minute
details of expenditure while the work is in progress and not a
post-mortem examination.

Objectives of cost audit include the determination and control of

cost together with providing data for making judgements and

decisions on various matters, such as operational efficiency.

GOI has added industries involved in the manufacturing of

plantation products together with the petroleum and

telecommunication industries in 2002 to the list of industries
requiring mandatory cost audits.

OBJECTIVES
1.

2.

3.

4.

5.

From the perspective of management:

Cost audit detects errors, frauds and misappropriation and hence
enhances efficiency.
From the perspective of shareholders:
Cost audit ensures that the valuation of closing stock and work-inprogress are correct, hence helps in the computation of more accurate
profit figures.
From the perspective of the government:
To curb the profiteering by the manufacturing concerns and help in
the decision to provide tariff protection to any industry.
From the perspective of customers:
Customers may obtain more benefit if the cost is reduced due to
effective control, implemented as a result of a cost audit.
From the perspective of cost accountants:
Cost accountants, who are employees of a company, obtain a share
of all benefits derived by the company from a cost audit.

Two aspect of Cost Audit

Property audit : audit of executive actions and plans
which have bearing on finance and profitabilty of the
concerns

Efficiency audit:appraisal of performance of to

ascertain whether plan have been executed efficentley
.audit is conducted to ensure that :
1. every rupee invested gives the maximum return
2. Balancing of investment between difffrent functions
of company designed to maximum return

COST AUDIT PROGRAMME

The Cost Auditor should pay his attention to the

following records:
Record of Materials
Labour Records
Record of Overhead Charges
Depreciation
Work-in-Progress Records
Incomplete Records
Stores and Spare Parts Records

Difference between Financial

Audit and Cost Audit
Financial Audit

Cost Audit

It is statutority compulsory under

Companies
Act.

It is not compulsory except in

certain cases as
provided under section 233B.

It covers all the financial

transactions recorded
in financial books and financial
records

It covers only cost records and

cost accounts.

It aims to examine that the business

transactions have been recorded
correctly

It aims to verification of cost

accounts and
ensures the plan prepared in this
connection has
been duly executed.

It is concerned with the past and

historical in nature

It concerned with forward

looking approach.

Difference between Financial

Audit and Cost Audit (cont..)
Financial Audit

Cost Audit

Reporting the true and fair view of

the company's earnings and state of
affairs.

Cost Auditor is required to

report to the
management except statutory
audit.

Financial aspect of the accounts is

a matter of concern.

Cost aspect of account is of

main concern

It is concerned with the scrutiny of

reliability or otherwise of
transactions.

It is concerned with the

propriety and efficiency
of the transactions

Cost Audit Techniques and

Procedure
Ascertai internal control
Vouching
Checking and ticking
Test checking
Valuation and verification
Questionnaires

Advantages of Cost Audit to

management
Provides reliable data for managerial decision
Helps management to regulates production
Acts as detection tool for error
Helps in comparing actual results and budgeted

result
Helps in finding profitability of different unit

Advantages of Cost Audit to

shareholders
Ensure proper recording of cost data
Helps to evalute managerial efficiency
Ensures a true picture of companys state of

affair

Advantages of Cost Audit to

consumers
Reveals true cost of production
Justify the price

Advantages of Cost Audit to

Goverment
Helps tarriff board

Help to meausre and improve the efficiency

of sick industrial unit

Revael fraundulent intention of management
Help in pricing various commodities
Helps in tax imposing decision

THANK YOU!