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What is audit?

The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product.

Introduction
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 cost accounts 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 cost accounting.

What is cost audit?
According to the Institute of Cost and Management Accountants of England, cost audit represents the verification of cost accounts and a check on the adherence to cost accounting 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 accounting principles, plans, procedures and objectives.

Importance of cost audit
i. 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 system of reporting to management. iii. Inefficiencies in the working of the company will be brought to light to facilitate correction action. iv. Management by exception becomes possible through allocation of responsibilities to individual managers

Auditor’s rights and duties: Rights:
(a) Has a right of access at all times to the company's books, accounts and vouchers (in whatever form they are held) (b) May require any of the following persons to provide him with such information or explanations as he thinks necessary for the performance of his duties as auditor.

Duties:
(a) whether adequate accounting records have been kept by the company and returns adequate for their audit have been received from branches not visited by him, and (b) Whether the company's individual accounts are in agreement with the accounting records and returns, and (c) In the case of a quoted company, whether the auditable part of the company's directors' remuneration report is in agreement with the accounting records and returns.

Qualification of Cost Auditor
I. There are several members of the Institute of Cost and Works Accountants of India (ICWAI), who have qualified the examination of both the Institutes namely ICWAI and the Institute of Chartered Accountants of India and thus are eligible for membership as well as certificate of practice from both the Institutes. However, none of the members can hold “certificate of practice” in more than one Institute under the provisions of both the Institutes. Therefore, practically there is no possibility of any financial auditor to practice as cost auditor or vice versa. II. However, it is only in the background of the aforesaid proviso that Section 233B(5)(b) provides that a person appointed under Section 224 as an auditor of the company (financial auditor) shall not be appointed or re-appointed for conducting the audit of the cost accounts of a company (cost auditor of the same company).

Disqualifications of a Cost Auditor
I. The sub-Section (4) of Section 226 provides that a person shall also not be qualified for appointments auditor of a company if he is, by virtue of sub-Section (3), disqualified for appointment as auditor of any other body corporate which is that company‟s subsidiary or holding company or subsidiary of that company‟s holding company, or would be so disqualified if the body corporate were a company. In other words, if a person is disqualified under any of the aforesaid classes from being appointed as an auditor of any company or body corporate, he cannot be appointed as auditor of its holding company, subsidiary or „co-subsidiary‟; and II. III. A person, who is in full time employment elsewhere [Section 224 (1B)]. If an auditor becomes disqualified after his appointment, under any of the above provisions he shall be deemed to have vacated his office.

Cost Audit Programme
I. A cost audit programme is the cost auditor‟s plan of action indicating the tests and procedures to be followed to implement the cost audit plan. The programme should be comprehensive and detailed to serve as a manual to the assistants and as a means to efficiently and effectively execute the audit of each of the element of cost of sales prescribed in the cost accounting records rules. II. The cost audit programme should then be discussed with the management to ensure that the programme does not clash with other audits as far as possible. This will also reveal the preparedness of the company for cost audit and any arrears in the compilation of cost accounting records could be taken care of well in advance before the actual commencement of cost audit.

Scope of Cost Audit
I. Section 227(2) of the Companies Act, 1956, requires the auditor of a company to state whether the accounts in his opinion give a true and fair view of the state of the company‟s affairs in the case of the balance sheet and of the profit or loss for its financial year in the case of the profit and loss account. Therefore, statutory financial audit of a

company conducted by the Chartered Accountants an essential annual feature of all the companies registered under the provisions of Companies Act, 1956. The Board of Directors of every company has a statutory obligation to place its audited annual accounts viz. Profit and Loss Account and Balance Sheet before the shareholders in the Annual General Meeting, duly certified by a Chartered Accountant appointed as an „Auditor‟ under the provisions of Section 224 of the Act. However, there is no corresponding statutory provision for compulsory annual audit of cost accounts of a company covered under Section 209(1)(d) of the Companies Act or under relevant Cost Accounting Records Rules.