Cost audit has been defined by the chartered Institute of Management Accountants, London as “the verification of cost accounts and a check on the adherence to the cost accounting plan”. The Institute of Cost and Works Accounts of Indian defines “ cost audit efficiency of minute details of expenditure while the work is in progress and not a post-mortem examination.
Financial Audit is a fait accompli. Cost Audit is mainly a preventive, a guide for management policy and decision, in addition to being a barometer of performance. Thus the main functions of cost audit are
- To verify that the cost accounts are correctly kept accordance with the principals of costing employed in the industry;
- T ensure that the cost accounting routine laid down by the business is properly carried out;
- To detect errors and prevent fraud and possible misappropriation if the extent of efficiency of utilisation of factors of production.
Appointing Authorities of Cost Audit
A cost auditor may be appointment by-
- Internal authorities i.e., by the same management, to conduct cost audit as an aid to management.
By external authorities such as, by-
- Government to conduct an audit on behalf of Government.
- Customer to carry out cost audit on behalf of the customer.
- Trade association or tribunal to facilitate cost audit on behalf of trade association or tribunal.