Page 154 - DCOM206_COST_ACCOUNTING_II

Basis
Financial Audit
S. No.
Cost Audit
(i)
detailed checking of expenditures,
a financial auditor to examine cost
particularly allocation and
accounts except for the purpose of
inventory valuation.
apportionment of overheads.
The primary objective of cost audit
The primary objective of financial
Objective
(ii)
audit is to see whether necessary
is to verify the cost records have
been properly maintained by the
accounts, records and documents
have been maintained by the
accounts department or
enterprise or organisation.
organisation.
(iii)
Compulsion
As per the Company Act, statutory
As per the Company Act, financial
cost audit is only required for the
audit is compulsory for each
financial year.
company for every financial year.
Cost audit is an audit of cost
Area
(iv)
Financial audit is an audit of
financial accounts, financial
accounts, cost statements and
statements and documents.
various cost plans.
The statutory cost auditor cannot
(v)
The statutory financial auditor
Statutory
audit
also conduct a statutory financial
cannot conduct a statutory cost
audit in the financial year.
audit in the organization.
Audit report
The financial auditor submits his
(vi) Purpose Financial audit is not necessary for The cost auditor has to make a
Cost auditor also submits his
report to the shareholders as per report to the Management. But in
rule of the Company Act. the case of statutory cost audit, the
audit report is required to be
submitted to the board of directors.
(vii) Competent A chartered accountant is A qualified cost accountant is
person considered competent person for considered competent person for Unit 8: Cost Audit
performing financial audit. performing cost audit.
(viii) Postmortem Financial audit is somewhat a Cost audit also refers to the past; it
postmortem examination. It back to creates thinking for the future.
the past of company or Notes
organization.
(ix) Share- Financial audit is essentially an Cost audit is in the hands of
holders and audit on behalf of the share management and also conducted
management holders. on behalf of the management.
(x) Inventory In the matter of stock or inventory, The cost auditor has to not only
checking the financial auditor has only to see check the cost of each item of stock
whether all categories of stocks or or inventory, but also see whether
inventories have been included in the inventories of materials have
the accounts. been included in the proper way.

Self Assessment
Fill in the blanks:
8. …………………… is very useful in public enterprises because it pinpoints the inefficiency
of the employees.
9. Cost audit reports raise the status of …………………….
10. The government and the trade associations may require cost audit for the purpose of
fixing selling prices to prevent excessive …………………….
8.4 Cost Auditor: Appointment, Eligibility, Rights and
Responsibilities
The various rules with respect to cost auditor’s appointment, eligibility, rights and responsibility
are discussed below.
8.4.1 Appointment of Cost Auditor
The Cost Auditor has to be appointed by the board of directors under section 233-B of the
Companies act subject to prior approval of the Company Law Board. This will be done on
receipt of specific order from the Company Law Board for getting audited the Cost records and
Cost statements of a financial year for specified products. For appointment of auditor, the board
of directors is required to pass a resolution either in its meeting or by circulation with a condition
that the same is subject to approval of the Central Government.
Appointment of cost auditor is made on the receipt of an order from Central Government
within a specified period. The person to be appointed as cost auditor must hold a certificate of
practice from the Institute of Cost and Works Accountants of India. Consent of the cost auditor
should be obtained before making an appointment as cost auditor. Application in prescribed
form as per rule is submitted to Central Government with the prescribed fee along with a copy
of the boards’ resolution.
Approval for appointment of cost auditor is communicated by the Central Government to the
company after considering the application and the name of the auditor proposed subject to the
condition that the cost auditor is not disqualified as per related section of the Companies Act,
1956 as amended. A copy of this communication will also be sent by the Central Government to
the cost auditor. The company should issue a formal letter of appointment to the cost auditor
after receiving the approval of the Central Government.
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