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Unit 12: Cost Audit

2. Accuracy: The reports should be reasonably accurate. A report sometimes will be Notes
approximated but approximation should not be done up to the level where information
loses its form and utility. Controllability The report should be addressed to appropriate
persons in respective responsibility centers and its variance should be mentioned.
3. Cost Consideration: The cost of preparing and presenting the report should also be
considered and it should not exceed the advantage derived from such reports.
4. Comparability: This reporting system is meant to help management in taking correct
decisions and improving operational efficiency of organization. This information helps
in finding out deviations or variances.
5. Frequency of reports: Along with promptness, the frequency of reporting is also significant.
The timing of reporting will depend upon the nature of information and its purpose.
These reports are prepared for appropriate persons.

Self Assessment

Fill in the blanks:
7. The objective of a management audit is not to appraise individual executive performance,
but to evaluate the management team in relation to their.....................
8. Three basic evaluation methods exist for any work activity includes inspection, compliance
auditing and ........................
9. Management audits, which are generally performed internally, are compliance audits
plus ............................

12.4 Summary

Cost audit means a systematic and accurate verification of the cost accounts and records
and checking of adherence to the objectives of the cost accounting.
At present, the Companies Act contains provisions relating to maintenance of Cost Records
under section 209 (1) (d) and Cost Audit under section 233B of the Companies Act in
respect of specified industries.
In cost audit, auditor has to perform the following duties: Examine the correctness of the
cost records maintained by the concern and to report as to whether the cost accounting
plans have been adhered to or not.
If any activity of a company is covered under cost audit dated 2nd May 2011 or 30th June
2011 or 24th January 2012, the cost audit will be applicable to that company irrespective of
the turnover of that particular activity.

Through Notification No G.S.R. 480(E) of June 12, 2003, the Department of Company
Affairs (DCA) has replaced MAOCARO with the Companies (Auditor’s Report) Order,
2003 — CARO. The new order does merely remove the MAO in the old order — it appears
much more expansive in scope.
Effective from July 1, 2003, it applies to all companies save banking and insurance
companies, Section 25 companies and private limited companies with paid-up capital and
reserves of less than ` 50 lakh which have not accepted public deposits and do not have a
loan liabilities in excess of ` 10 lakh and whose turnover does not exceed ` 5 crore.
Three basic evaluation methods exist for any work activity: inspection, compliance auditing
and management auditing.

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