COST AUDIT
Subject: Corp. Financial A/cing & Auditing
DEFINITION
CIMA, London “ the verification of cost accounts and a check on the
adherence to the cost accounting plan”
2 functions:
Verify the cost accounts have been properly maintained
Check the adherence to the cost accounting plan
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Objectives of Cost Audit
1) To Detect Errors & Frauds
2) To verify the accuracy
3) To have a full control on working of costing Dept. of the Org.
4) To Reduce the detailed checking of the external auditor
5) Helps the mgt. to take correct and timely decision
6) Moral check on staff of cost accounting Dept.
7) To bring efficiency in cost a/cing systems & procedures
8) To bring efficiency in the use of material labour machines etc.
Principles of Cost Audit
1) Code of Ethics
2) Independence of Cost Audit
3) Integrity and Objectivity
4) Professional Competence
5) Confidentiality
6) Professional Behavior
7) Technical Standards
8) Professional Code of Ethics
9) Engagement of other occupation
Financial and Cost Audit
Financial Audit
Cost Audit
Audit of financial account has been
compulsory under companies Act
1956.
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.
The Financial Auditor is required to
report whether the financial
statement exhibits true and fair view
of state of affairs of the business
Cost Auditor has to check the
propriety of each item of expenditure
and certify whether they have been
incurred prudently or not.
Financial Auditor sees whether the
expenses incurred are supported by
proper vouchers
Cost Auditor ensure that the expenses
incurred have been aimed at
achieving better results.
Financial Auditor submit his report to Cost Auditor reports to the Board of
the shareholders.
Directors
Financial Audit is mainly to check the Cost Auditor sees also whether
arithmetical accuracy of different
suitable steps have been taken to
books of accounts.
reduce the cost of production
The work of Cost Auditor is in the
factory
Financial and Cost Audit
Financial Audit is conducted every year in Cost Audit may be conducted only for a
all companies
particular year and even for a specific
jobs.
Financial Audit does not measure the real
efficiency of an organization.
Cost Audit measure the efficiency of the
organization , especially production
processes.
Financial Auditor verifies whether the
closing stock has been properly valued.
The Cost Auditor looks into the methods
followed and the adequacy or otherwise
of the stock to meet the requirements of
the organization.
Financial Audit is a sort of postmortem
audit
Cost Audit is forward looking with
suggestion for future.
Aspects Of Cost Audit
It has two important aspects:
1) Propriety Audit
2) Efficiency Audit
1. Proprietory Audit
Cost audit as a basis of proprietary audit serves the following ;
Whether the expenditure is appropriate and not more than what
the situation demands.
Whether any personal benefit has accrued to the sanctioning
authority as a result of this expenditure.
Whether the expenditure has indeed served the purpose for
which it has been incurred.
Whether the prescribed rules and regulations have been duly
followed.
2. Efficiency Audit
 In identifying the areas of inefficiencies and weaknesses.
In determining the appropriate selling price of the commodity and
services.
In determining appropriate cost of different products & services.
In ensuring the optimum utilization of the plant capacity.
In proper allocation and apportionment of overheads on the most
equitable basis.
In creating an atmosphere, Cost conscience through out the
organization.
Advantages of Cost Audit
The important advantages of cost audit can be studied as
under:
1) To the Management
2) To the Shareholders
3) To the Consumers
4) To the Government
5) To the Society
1)To the Management
i. Control On Different Elements Of Cost
ii. Assessment Of Profitability
iii. Check On The Role Of Uneconomic Units
iv. It Helps In Reducing The Prices
v. Check On Cost Control Techniques
vi. Helpful In Budgetary Control & Standard Costing
vii. Fixing Responsibilities Of Specific Persons
viii. Proper Valuation Of Raw Material & Work- In- Progress
ix. Helpful In Fixation Of Contract Price ( Tender Price)
2) To the Shareholders
i.
Guarantee Of The Proper Maintenance Of Records
ii. Fair Return On Investment
iii. Timely & Proper Information
3) To the Consumers
i. It Helps In The Fixation Of Fair Prices
ii. Increase In The Standard Of Living
4) To the Government
i.
Improve working of uneconomic industrial units
ii. Guidance
iii. Helpful in providing cost statements & other relevant
information
iv. It facilitates the settlement of trade disputes
v.
Helps the ‘Tariff Board’
vi. Ceiling prices
vii. Cost plus contract
5) To the Society
i.
Provides guidelines to the industries for improving
working
ii. Justification of price increase by increase in cost of
production
iii. Reduces the prices
Management Audit
•Meaning : The Examination review of various
policies and action of the Management on the
basis of certain specified objectives.
• Definition :•
Management Audit is Independently
Examination of organisation structure, operation
function ,Analyzing goals ,plans ,Policies,
Activities, weaknesses and Evaluation of earning
capacity of the Management.
Objectives of management audit
To identify the level of achievement of the main objectives of
organisation .
To indentify the defects
executives .
or irregularities of management
To ensure that the management is going to achieve the
objectives.
To help the management to do efficient administration of the
operations.
Important of Management Audit
Management functions and processes in order to improves its
efficiency.
A change in the method of purchase in beneficial to the company.
Expected top suggest that change in the system of running the
business would be beneficial to the company.
The success or failure of business or company depends fully on the
quality of management
Advantages of Management Audit
Management audit provides information about strong and weak
point of the management after reviewing policies and programs. So, it
helps to the smooth operation of an organization.
Management audit provides suggestions to the management which
helps to maintain effective management.
Management audit helps the management providing suggestions to
attain goal of an organization.
Disadvantages of Management Audit
Management auditor cannot understand the practical
problems. So, the suggestions provided by them is theoretical
but not practical.
Scope of management audit is vague. So, it does not help to
achieve specific goal.
Generally management give more emphasis on maintaining
books of accounts rather than concentrating on other factors.
So, it consumes time of farsighted management.
Thanks..