COST AUDIT

According to the institute of cost and works accountants of London-cost audit is the verification of the correctness of cost accounts and adherence to the cost accounting plans

MEANING

Cost audit is the systematic examination and verification of the correctness of cost accounts, costing techniques and systems so as to ensure the adherence of the same to the cost accounting plans and objectives.

OBJECTIVES OF COST AUDIT

To examine and verify the cost accounting records maintained by a company

To ensure that principles of cost accountancy have been fully applied in maintaining cost records properly

To ensure that cost accounting procedures and routines as predetermined or planned by the management are properly followed

To detect and prevent errors, frauds or misappropriations

To see how far the existing procedure of cost accounts is helpful to the management for taking decisions

To bring forth the deficiencies in the use of material labour and other resources

To determine the adequacy of costing system, procedure, routines, reports and statements followed by the company

To reflect a true and fair view of the cost of production as far as possible

To ensure the integration of cost accounting system into the total system of the organization and to provide for reconciliation of cost and financial accounts

ASPECTS OF COST AUDIT

There are two important aspects of cost audit

Proprietory audit-it is the audit of executive action and plans which have a bearing on the finance and expenditure of the company

Efficiency audit-also known as performance audit. It is concerned with evaluation of policies, plans and decisions and their results so as to ensure that these have been carried out efficiently.

ADVANTAGES OF COST AUDITMANAGEMENT

1.Cost control and cost reduction

2.Increases the efficiency of financial audit

3.Helps to improve efficiency in the use of material, labour, plant and other resources

4. Aids management to taking managerial decisions

5.Improve performance efficiency of its units by inter-firm comparison of cost and profit data

6.Identify and eliminate weak and uneconomical areas

7.Increasing profitability of the company

8.Facilitates the analysis of variances

9. Help in fixing individual responsibilities for inefficient operations and improve their performance

10.Accuracy and reliability of cost accounts and helps in improving the cost accounting system and techniques.

11.Helps in fixation of selling prices, contract price or tender prices,etc

SHAREHOLDERS

1. Proper records

2. Working efficiently and economically

3. Fair return on investment

4. Cost and profitability

CONSUMERS

1.Fixation of fair prices

2.Helps in reducing wastages, increasing productivity and reducing costs

3. Increases the standard of living of the consumers.

WORKERS

1. increased profitability resulting into higher bonus, better working conditions, and increased facilities, etc.

2. Settling many trade disputes between the management and the workers, such as higher wages, bonus, profit sharing, etc.

3. Improve their efficiency

GOVERNMENT AND THE PUBLIC

1. Fixing the prices of the commodities

2. Determine the quantum of duty draw back and also prevent additional out go of foreign on imports which otherwise may be misutilised.

3. Used to regulate custom and excise duties

4. Help the government authorities to determine whether the benefits of tariff and other concessions are being passed on to the public

5. Long –term price contract and also for settling claims for escalation of prices

6. Settlement of trade disputes

7. Fraudulent management of a company

TYPES OF COST AUDIT

Statutory cost audit

Cost audit on behalf of the management

Cost audit on behalf of the government

Cost audit on behalf of the customers

Cost audit on behalf of trade associations

Cost audit on behalf of tribunals

LIMITATIONS OF COST AUDIT

Expensive

Lengthy

Lost time

uncertainity

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