COST AUDIT

BY:
DHIRENDRA KR CHAUDHARY

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
It is statutority compulsory under Companies Act. 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. It covers only cost records and cost accounts.

It aims to verification of cost accounts and ensures the plan prepared in this connection has been duly executed. It concerned with forward looking approach.

It is concerned with the past and historical in nature

Difference between Financial Audit and Cost Audit (cont..)

Financial Audit
Reporting the true and fair view of the company's earnings and state of affairs. Financial aspect of the accounts is a matter of concern.

Cost Audit
Cost Auditor is required to report to the management except statutory audit. 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!