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  Cost Audit

Introduction to Cost Audit

Audit has been described as an efficient examination of the books and records of a business or other organisations in order to verify or ascertain, and to report on the facts concerning its financial operations and results thereof. Currently, the scope of audit function has been expanded to new areas. One of these areas is cost audit. As per to the Chartered Institute of Management Accountants, that is situated in London, the meaning of cost audit, "the verification of cost accounts and a check on the observance to cost accounting plan. So, cost audit includes-checking up the arithmetical accuracy of cost accounts and verifying whether the standards that are laid down have been followed or not.

Functions

The functions of Cost Audit are as follow:

(i) It validates that the cost accounts have been accurately maintained and prepared as per to the system of cost accounting used through the concern so since to serve both cost ascertainment and cost control functions.

(ii) It makes sure that the costing plan laid down that is described routine of cost accounting (like pricing of stores, apportionment and allocation of overheads etc.) is being performed.

(iii) It detects and avoids errors and frauds in preparation of cost records.

Scope of Cost Audit

There are two significant aspects which come in the purview of cost audit. They are as follow:

(a) Propriety audit.

(b) Efficiency audit.

(a) Propriety audit

It is an audit related with such type of action and plans of management that contain a bearing on the expenditure and finance of the company. The cost auditor has not only to see that an item of expenditure is appropriately sanctioned and supported through voucher but also is justified on grounds of propriety. So he has to report

(i) Whether or not the intended expenditure could provide optimum results.

(ii) Whether or not the size or channel of investment was/were designed to generate the best result.

(iii) Whether the return from investment in specific channel could be bettered through some alternative plan of action.

(b) Efficiency audit.

It is an audit that is concerned with the appraisal of performance to conclude not only that the expenditure has been acquired as per to the plan but also to see that the result have been acquired as planned it start along with examination of plan (like financial or other functional budgets) and expand to the comparison of actual performance along with the budgeted performance and finding out reasons for several .So it make sure that:

(i) Each rupee invested in capital or in other fields provides the optimum return and

(ii) Investment in dissimilar spheres of the business has been so balanced that it provides maximum results.

So, the cost auditor in himself the role of Financial Adviser and the consultant. He assists the Chief Executive of the organization in working out a sound complete judgement on the financial plans and performance of the company through co-ordinating the results of action of the several departments.

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