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  Cost Audit Techniques

Introduction to Cost Audit Techniques

The methods employed through a cost accountant in the performance of his job are identical to those used through an auditor of financial accounts. These methods can be summarised as follows:

1. Vouching means inspection through the auditor of documentary proof supporting and substantiating a transaction. In vouching, the auditor not just sees that the transaction is supported through a voucher but also verifies that the transaction is correctly authorised, recorded and entered in the text books of account. For instance, in case of issue of materials, the auditor will see that there is an appropriate material demand slip against that the materials have been issued and such type of issue of materials has been well recorded in the books.

2. Check marks or tick marks with coloured pencil or pen are employed through the auditor to indicate that work like totals, postings; calculations, etc. have been checked. Rubber stamps might also be employed for this purpose.

3. In case the concern has a reliable system of internal control, the cost auditor might not take a cent per cent check but may satisfy himself through carrying out just test checking. The selection of items might be completed on the basis of random sampling.

4. The auditor should create careful and exact notes of all materials facts/ discovered through him in the course of audit concerning that he will like to seek clarifications from the officials concerned. In case he comes across specific errors or defects in the system of accounting or internal control in the organisation he should also notice them down.

5. Auditor should frame specific questionnaires about significant element of cost He should get the reply of management in Yes or No" to these questions.

Typical instances of such type of regarding materials and labour are given below:

Materials

(a)   Are Goods Received notes ready for all materials received?

(b)    Are all materials received are accordingly inspected for quality and inspection reports ready?

(c)    Are all issues of materials created against proper material requisition slips?

(d)   Are all entries in Bin Cards created daily from Goods Received Notes?

(e)   Are stores taken from bins recorded daily on bin cards?

(f)     Are issue crates worked out accurately and in time?

(g)   Are stores ledgers and bin cards maintained on perpetual inventory system?

(h)   Are all wastes and losses reported?

(i)     Is stock verification carried out as per to plans and corrective action taken if discrepancies are revealed on stock verification?

Labour

(i) Are the attendance records of the workers finished daily?

(ii) Are the gate passes made for workers exit of the factory on duty or for short leave?

(iii) Is overtime work sanctioned through a proper authority?

(iv) Do the attendance records consist of details of overtime worked?

(v) Are workers paid wages on the due dates in the existence of the concerned departmental?

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