In this tutorial, we will learn about the definition of cost audit means detailed checking of the costing system, technique, and accounts to verify their correctness and to ensure adherence to the objective of cost accounting.
A cost audit represents the verification of cost accounts and checking on the adherence to cost accounting plan. Cost audit ascertains the accuracy of cost accounting records to ensure that they conform with cost accounting principles, methods, procedures, and objectives.
- Verification of the cost accounting records such as the accuracy of the cost accounts, cost reports, cost statements, cost data and costing technique
- Examining these records to ensure that they adhere to the cost accounting principles, plans, procedures, and objective
- To report to the government on optimum utilization of national resources.
- To verify that the basic principles of cost accountancy or related rules framed there to implement specific statutory provisions are correctly carried out in maintaining cost accounts in the right manner.
- To see that the organizations continue proper cost books, accounts and records either required by law or otherwise as a managerial decision.
- To report on the optimum utilization of national resources to the government.
“Cost audit is the verification of accounts and check on the adherence to the cost accounting plan.” ICMA London
“Cost audit means detailed checking of the costing system, technique, and accounts to verify their correctness and to ensure adherence to the objective of cost accounting.” Smith & Day
“Cost audit can be defined as verification of correctness of cost accounts and adherence to the cost accounting principles, plans, and procedures.” ICWA India
OBJECTIVES OF COST AUDIT:
Under which cost audit aims to identify the undue wastage or losses and ensure that the costing system determines the correct and realistic cost of production.
- To check the accuracy of cost accounting records and to verify that the cost accounting principles have maintained them.
- To verify that the management is adhering to the accepted procedures and processes of cost accounting.
- It detects errors and frauds if any.
- The pinpoint deficiencies or inefficiencies in the use of material, labors, and machines and to assist the management thereby.
- To see that the cost control and cost reduction program has rightly enforced.
- To examine whether the expenditure incurred up to date is within the budget estimates.
Cost audit provides useful information to the management regarding regulating production, economical method of operation, reducing the cost of service, and reformulating cost auditing plans.
- To provide useful information and data to management for regulating production.
- To assist in the selection of economical methods of operation.
- To present suggestions for reducing operational costs.
- To advise to resolve errors in cost accounts.
- To provide recommendations and consultancy for cost control.