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  Advantages of Cost Audit

Advantages of Cost Audit

Cost audit is beneficial to management, statutory auditor, cost accountant, and all other persons interested in the organisation. The advantages of cost audit to the several parties can be shortened as follows:

Advantages to Management

(a) The auditing of cost accounts acts like a useful tool in the hands of management for the detection of frauds, inconsistencies, errors, and irregularities. The function of the cost auditor is such as lubricating the machines that is why effective, reliable and smooth functioning of the costing system is sustained.

(b) On cost reports after cost audit greater reliability can be put and, So decision making can be made more confidently because the basis of the principle of management through exception.

(c) Cost audit also work as a medium of better understanding and liaison among persons at the helm of affairs and persons at the bottom.

(d) Management acquires constructive advice for day to day activities of the business:

(e) Audited cost accounts are useful in making inter-firm comparison.

(f) The presence of cost audit has a great moral affect as a result of which the efficiency is promoted.

(g) Wastages are checked.

Advantages to statutory auditor

(i) The statutory auditor can establish the scope and character of his audit after containing an appraisal of costing system used through the organisation.

(ii) Cost records are useful to the statutory auditor in respect of the following matters:

(a) The valuation of closing inventory is prepared on the basis of cost or market price, that is less". Cost records assist the statutory auditor in determining the cost of such type of inventory.

(b) Cost records will be useful in ascertaining the correctness of the remuneration payable to employees or directors like a percentage of gross profit or departmental profits.

Advantages to shareholders and tax payers

(i) External cost audit represents the following features advantageous for the shareholders or tax payers:

(a) Inefficiency or efficiency of the management.

(b) Improper or proper use of resources.

(c) Weak or strong points of the organisation.

(d) Productivity of materials machines and labour.

(ii) Cost audit makes sure that inventory of raw materials, work-in-progress and finished goods have been correctly valued. So it helps in providing to the shareholders and the tax payers a very much better picture of the concern.

Advantages to the government

(i) Government is makes sure about the correctness of the cost data in case of cost plus contracts.

(ii) Correct cost data assists the Government in fixing fair price of the products. Undue profiteering is checked.

(iii) Correct action can be taken through the Government in case management is found to be weak, not efficient or corrupt.

(iv)  In case of escalation clause being involved in the contract, the contractee can be sure regarding the cost data if cost accounts have been audited through qualified cost accountants.

(v) Cost audit pinpoints the areas in which economy and efficiency can be achieved. So, it contributes in the direction of the betterment of national economy.

Advantages to Society

(i) Through fixing prices reasonable/consumers are saved from exploitation.

(ii) Healthy competition between dissimilar units in industry is generated, leading proper utilisation of scarce resources.

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