Objective of Cost Audit

The broad objectives of cost audit may be as follows:
Protection of the Business.
It deals with proper ascertainment and control of cost by-

  • Detecting error or ensuring that cost records are compiled correctly.
  • Checking accuracy of records in order to verify that cost accounts are correctly maintained in conformity with accepted cost accounting principles adopted in the industry;
  • Ascertaining whiter procedures and routines as laid down by the management are properly and uniformly followed.
    Constructive.
    As far as his audit is concerned, a great deal depends upon the attitude of the management and /or the appointing authority and scope of the audit. The auditor acts in this case of audit in an advisory capacity for the well being of the shareholders of the company.

This function may extend to judging:

  • Whether existing procedure, submission of reports and returns are adequate or wasteful. Changes may be introduced in conformity with modern costing techniques and unnecessary routines may be eliminated.
  • Whether the existing procedure is effective to the management for taking decisions.
  • Whether or not the projected expenditure could give the optimum results.
  • Whether the return on capital employed is adequate, if not, whether it can be bettered.
    Pre-audit or Prior Concurrence.
    Here the auditor sees whether the expenditure has already been provided for in the budget estimates and that the cumulative expenditure up-to-date has not exceeded that provision and the canons of financial propriety.  This function is vested in the financial adviser for a control over the utilisation of available finance in case of government organisations.

 Comparison of Costs.

Comparison of the actual cost for the year is made with the cost pertaining to previous year or years to ascertain whether cost has increased or decreased as compared to the known reasons for variances.  By making a comparison of cost, the cost auditor is able to know the abnormal cost. These abnormal costs are brought to the notice of the management for taking remedial measures so that these costs may not arise in future.

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