Page 148 - DCOM206_COST_ACCOUNTING_II

Unit 8: Cost Audit

8.1.1 Objectives of Cost Audit Notes

The broad objectives of cost audit may be as follows:
(i) Detecting errors or ensuring that cost records are compiled correctly.
(ii) To examine and verify the arithmetical exactness in the cost ledgers or cost books.

(iii) Ensuring that the cost accounting routine laid down is properly carried out.
(iv) To trace and check the errors and fraud in cost ledgers.
(v) Verifying that cost accounts are correctly maintained in conformity with accepted cost
accounting principles adopted in the enterprise or industry.
(vi) To establish that the policies and procedures fixed by management for effective decisions
are being pursued uniformly or not.

(vii) The present use of capital is adequate or not. Whether it can be bettered.
(viii) To see whether the determined policies, procedures, various reports and descriptions for
presentation are adequate and appropriate or not.

(ix) To check whether the adopted procedure is effective in carrying out managerial decisions
or not.
(x) In the event of cost plus contract, to verify the purity of output of cost.

Self Assessment

Fill in the blanks:
1. Cost …………………… is concerned mainly with propriety and efficiency audit.
2. Proper utilisation of labour will lead to increase in efficiency and …………………….
3. Cost auditor’s objective is to verify that cost accounts are correctly maintained in conformity
with accepted …………………… accounting principles adopted in the enterprise or industry.

8.2 Types of Cost Audit

The following are the main types of cost audit:
(i) On the basis of Origin, and
(ii) On the basis of Nature.

(i) On the basis of Origin: On this basis of origin, the cost audit is divided into following
categories:
(a) Internal Cost Audit: It means the audit under which the auditors are appointed to help
the managerial decisions of enterprise taken by the top management. Internal cost
audit can be further divided into:
 Continuous Internal Audit continues for the year round with the cost accounts.
This audit helps in tracing the faults and errors and provides ready time to
correct them. Cost accounting is not left incomplete, therefore, whatever
information is needed, is available at hand.

 Periodic Internal Audit is done after a definite period of time, wherein the
accounts of that period are checked and examined.

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