Unit - 5 (Special areas of Audit)

Cost Audit
Cost Audit is the verification of the cost accounts and of the adherence to the cost accounting
plan. That is, it not only involves the examination of cost accounts but also the fact that plan
prepared in this connection has been duly executed.

Features of Cost Audit

 It is not compulsory except in certain cases as provided under section 233B.
 It covers only cost records and cost accounts.
 It aims to verify the cost accounts and ensures the plan prepared in this connection has
been duly executed.
 It is concerned with forward looking approach.
 Cost aspect of account is of main concern.
 It is concerned with the propriety and efficiency of the transactions.

Tax Audit
A tax Audit is done to verify that all income along with the deduction of expenditure is
verified. Section 44 AB of the Income Tax Act, 1961 says that the aim of the audit is to
ascertain the factual veracity of the returns filed and the accomplishment of other
requirements as per applicable rules.

Management Audit
Management audit is a method of independent and systematic evaluation of the management
activities at .all levels of management to ascertain the functions, efficiency and achievement
of' the management (i.e. policies) as compared to standards set by the company.

The scope of management audit is much wider than financial audit because management
audit evaluates not only financial audit but also other aspects of the business. It is the method
of evaluating the total efficiency of the management from the top level to the lowest level.

Features of Management Audit

 Evaluates Efficiency of the Management: Management audit is a method of
independent and 'systematic evaluation of the management activities at all levels of
management to ascertain the functions, efficiency, and achievement of the
management (i.e. policies) as compared to standards set by the company.
 Scrutiny of the Plans, Policies, and Procedure: Management audit helps to
determine how the management has implemented their plans, policies, and procedures
to reach the organizations' goal.
  Helps for Correction of Plans, Policies, and Procedure: Through management
audit, it is possible to change or revise the plans, policies, and procedures as per the
needs of the company.
 Aids for Decision Making: Management audit assess the ability of the managers to
take important decisions and helps them to rectify the defects.
 Helps to Get Loan: Financial institutions that give huge loans to organizations are
interested to know the efficiency of the management and the profitability.
Management audit certainly gives a guide to them.
 Helps to Get Subsidy: Before granting subsidy by the government, to any entity,
they are interested to know the efficiency and functioning of the management.
Management audit helps in this matter.
 Helps to Increase Profitability: Management audit helps the management to
increase profitability by giving remedies to maximize the organization's resources in
an efficient way.

Electronic Data Processing (EDP)

Electronic Data Processing (EDP) allows computer systems to run simple tasks of data
verification using automated methods and is extremely helpful in processing commercial
data.

The EDP principle can be applied to audit and more routine financial checks can be
automated to ensure the audit is completed in a timely and efficient manner.

Computer Aided Audit Techniques (CAATs)

The use of computer may result in the design of systems that provide less visible evidence
than those using manual procedures. CAATs are such techniques applied through the
computer which are used in the verifying the data being processed by it. System
characteristics resulting from the nature of EDP processing that demand the use of computer
assisted audit techniques are –

1. Absence of input documents

2. Lack of visible transaction trail
3. Lack of visible output
4. Absence of appropriate control
5. Unauthorized access to data and computer programmes.

Advantages of CAATs
Audit effectiveness and efficiency of auditing procedures will be improved through the use of
CAAT in obtaining and evaluating audit evidence for example –

 Some may be tasted more effectively

 Appling analytical review procedures.
 An auditor can save the time
 Effective test checking and examination in depth.
Auditing Standards
Standards on Auditing