COST AUDIT

BY:
DHIRENDRA KR CHAUDHARY

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

. such as operational efficiency.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.  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 of cost audit include the determination and control of cost together with providing data for making judgements and decisions on various matters.

From the perspective of shareholders: Cost audit ensures that the valuation of closing stock and work-inprogress are correct. 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. 3. .OBJECTIVES 1. who are employees of a company. From the perspective of customers: Customers may obtain more benefit if the cost is reduced due to effective control. 4. implemented as a result of a cost audit. 5. From the perspective of management: Cost audit detects errors. 2. frauds and misappropriation and hence enhances efficiency. obtain a share of all benefits derived by the company from a cost audit. hence helps in the computation of more accurate profit figures. From the perspective of cost accountants: Cost accountants.

Balancing of investment between difffrent functions of company designed to maximum return .audit is conducted to ensure that : 1. every rupee invested gives the maximum return 2.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 “.

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 .

It covers only cost records and cost accounts. It covers all the financial transactions recorded in financial books and financial records It aims to examine that the business transactions have been recorded correctly Cost Audit It is not compulsory except in certain cases as provided under section 233B.Difference between Financial Audit and Cost Audit Financial Audit It is statutority compulsory under Companies Act. It concerned with forward looking approach. It is concerned with the past and historical in nature . It aims to verification of cost accounts and ensures the plan prepared in this connection has been duly executed.

Cost aspect of account is of main concern It is concerned with the scrutiny of reliability or otherwise of transactions.Difference between Financial Audit and Cost Audit (cont. Financial aspect of the accounts is a matter of concern. Cost Audit Cost Auditor is required to report to the management except statutory audit. It is concerned with the propriety and efficiency of the transactions .) Financial Audit Reporting the true and fair view of the company's earnings and state of affairs..

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 company’s 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! .