You are on page 1of 33

COST AUDIT

By Priya V Roll no: 34

DEFINITION
CIMA, London ´ the verification of cost accounts and a check on the adherence to the cost accounting planµ 2 functions:  Verify the cost accounts have been properly maintained  Check the adherence to the cost accounting plan

Two aspects of Cost Audit: ‡ Propriety Audit ‡ Efficiency Audit or Performance Audit

OBJECTIVES ‡ ‡ ‡ ‡ ‡ Detection of errors and fraud Helps in fixation of price Ensuring optimum utilization of resources Proper method for Inventory Valuation Channelizing the resources on most productive & profitable areas .

submit the audit report.FEATURES ‡ Cost Auditor. ´ in triplicateµ to the Central Govt. & Co.ICWA . ‡ Copy of Cost Audit report has to be attached to Income Tax Return ‡ Statutory Cost Audit can be conducted only by a cost accountant holding a certificate.appoint by BOD ‡ Cost Auditor.

‡ ‡ ‡ ‡ Financial Audit Difference between Financial Audit and Cost Audit Management Audit Difference between Management Audit and Cost Audit Submitted by. DEEPA.G ROLL NO:11 .

Financial Audit financial audit means the verification of the financial statements of a legal entity. The audit gives a reasonable assurance that the financial statements exhibits a true and fair view of state of affairs of the business. .

Cost Auditor reports to the Board of Directors Cost Auditor sees also whether suitable steps have been taken to reduce the cost of production The work of Cost Auditor is in the factory The Financial Auditor is required to report whether the financial statement exhibits true and fair view of state of affairs of the business Financial Auditor sees whether the expenses incurred are supported by proper vouchers Financial Auditor submit his report to the shareholders. The work of Financial Auditor is in the office . Cost Auditor ensure that the expenses incurred have been aimed at achieving better results. Financial Audit is mainly to check the arithmetical accuracy of different books of accounts. Cost Audit Cost Audit is not compulsory in all companies expect in certain specified companies which is notified by central government from time to time under sec 233 B.Financial Audit Audit of financial account has been compulsory under companies Act 1956. Cost Auditor has to check the propriety of each item of expenditure and certify whether they have been incurred prudently or not.

Financial Audit is a sort of postmortem audit . Financial Audit does not measure the real efficiency of an organization. Cost Audit measure the efficiency of the organization . Cost Audit is forward looking with suggestion for future.Financial Audit is conducted every year in all companies Cost Audit may be conducted only for a particular year and even for a specific jobs. Financial Auditor verifies whether the closing stock has been properly valued. especially production processes. The Cost Auditor looks into the methods followed and the adequacy or otherwise of the stock to meet the requirements of the organization.

policies and activities in every phase of operation to turnover unsuspected weaknesses and to develop ideas for improvement in areas that have escaped management attention´ . ³Management Auditing is a diagnostic appraisal process for analyzing goals.Management Audit According to the American Institute of Management. plans.

management and financial administration. Management may decide to go for management audit whenever need arise The Management Auditor critically examines the policies and objectives of management and report on their sustainability The management auditor need not possess any specific qualification. In certain industries Cost Audit is compulsory and a statutory requirement as per government notification It is a regular feature and is conducted every year. The cost auditor must possess certain requisite qualification as per the provision of the companies act. Cost Audit It is a verification of correctness of cost accounts and of the adherence to cost accounting plans. He must have knowledge and experience in the field of accountancy. It is not a regular feature. .Management Audit It is a comprehensive critical review of all aspects of management processes The Management Audit is not a statutory requirement. 1956. The Cost Auditor checks cost accounts only.

. There is no time limit for the submission of management audit report The cost audit is conducted for every financial year separately. A time limit has been fixed by the law for submission of cost audit report.It covers wide areas of management¶s activities and may be for more than one financial year.

Amina Nazneen Roll no. 3 .

ADVANTAGES TO MANAGEMENT ‡ ‡ ‡ ‡ ‡ Helps to control on different elements of cost Helps in decision making Helps in reducing price Get advice on day to day activities Helps in budgetary control .

ADVANTAGES TO COST ACCOUNTANT ‡ Status will go high ‡ Improve costing efficiency ‡ Cost accounts can be reconciled with financial accounts .

labour and machine ‡ Fair return on investment .ADVANTAGES TO SHARE HOLDERS ‡ To know the efficiency or inefficiency of management ‡ To know about the utilization of resources ‡ To know about the productivity of material.

ADVANTAGES TO GOVERNMENT AND CONSUMERS ‡ Ensures about the correctness of the cost data in case of cost plus contracts ‡ Correct cost data helps government in fixing fair price of the products ‡ Helps contractors in case of escalation clause ‡ Cost audit pinpoints the areas where economy and efficiency can be achieved ‡ Helps consumers to get goods at fair price .

Presented by Parvathy.M Roll No:33 .

± vouching ± Checking and ticking ± Test checking ± Working papers ± Audit notes ± Questionnaires . ‡ Some of the techniques are.COST AUDIT TECHNIQUES ‡ Technique used by a cost accountant in the performance of his job.

.posting etc 3.1. VOUCHING Inspection by the auditor of a documentary evidence supporting and substantiating a transaction 2. CHECKING AND TICKING Check marks or tick marks are used for calculations . TEST CHECKING Auditor has to check a small part of the work on the basis of random sampling.

copies of important decisions and procedures etc.AUDIT NOTES Auditor has to make a note in the course of audit and he will seek clarifications from the officials. QUESTIONNAIRES Auditor should make questionnaire about important elements of cost. 6. 5.4. . WORKING PAPERS Working papers include copy of office manual .

LABOUR TRIBUNALS 3.IMPLEMENTING AUTHORITIES OF COST AUDIT 1 . TRADE ASSICIATIONS 4. MANAGEMENT .GOVERNMENT 2.

In case of orders placed under cost plus contract system with the private parties 4. 2. Giving protection to certain industries. LABOUR TRIBUNALS Labour tribunal may order for conducting cost audit for deciding workers claim for more wages. 3. When there are reason for prices are going up.1 . Fixation of fair prices of some basic materials 2. GOVERNMENT Government may order for cost audit for the following purpose 1. .

MANAGEMENT Management may order for audit of cost records to see that the costing data placed before the management is reliable. . 4.3. TRADE ASSOCIATIONS Trade associations may order cost audit of member companies to ascertain whether the costing procedure is being followed correctly.

36 .Rejitha C R Roll no.

‡ Affected by: Nature of the business. ‡ Specific to the unit concern. ‡ In detail. Size of the business. Existing system.‡ No standard pattern. Attitude of the management. .

Capital expenditure. . Plant and equipments. Overheads. Selling. distribution and administrative expenses.‡ Areas included: Inventory of stores. Labour. Work-in-progress. Utilization of capacity.

. ‡ An individual cost accountant or a firm of cost accountants with at least two partners.Cost Auditor ‡ An auditor appointed to conduct an audit of cost records.

.Qualification of Cost auditor ‡ To be a cost accountant within the meaning of the Cost and Works Accountants Act. 1959. ‡ To hold a certificate of practice issued by the Institute of Cost and Works Accountants of India.

1.000. or who is in the employment of an officer or employee of the company.Disqualifications of cost auditor ‡ A person who has been appointed to audit the accounts of the company ‡ A body corporate. ‡ An officer or employee of the company. . ‡ A person who is indebted to the company for an amount exceeding Rs. ‡ A person who is partner.

Appointment of cost auditor ‡ Appointed by the Board of Directors with the previous approval of the central government . . ‡ Validity ² only for the year for which he has been appointed.

Some accounts audited once by financial auditors. Shortage of cost accountants. Duplication of work. Secrecy in cost.Disadvantages of Cost Audit ‡ ‡ ‡ ‡ ‡ Expensive luxury. .