Definition of Cost Audit

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.

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