Page 159 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes They are complementary in nature. Firms make money by producing and/or selling
goods and services at a cost that is lower than the price at which they can sell the same.
Therefore, managers have an interest in installing an adequate and effective cost accounting
system. On this assumption, managers argue that there is no need for cost audit. But
reality is not which should logically happen. Many companies do not adopt the best
management accounting practices. Managers often do not focus on cost management
when the going is good. They take cost cutting as a project when company’s performance
in the product/service market declines sharply. At that time, in absence of a good cost
accounting system they get bewildered and get misled by unsystematic and inaccurate
cost and revenue information. Improvement in the use of resources should be a continuous
process. Customers today look for ‘cheaper and better’ products and services. The starting
point for introducing a continuous cost improvement culture is to establish a cost accounting
system that will provide correct information on the product/service cost and revenue and
the cost dynamics. Cost audit brings out the weaknesses in the cost accounting system and
draws attention to wastes and thus, improves the competitiveness of the business. Thus,
cost audit is complementary to the internal audit. Cost audit aims to improve the
competitiveness of Indian companies and the economic productivity of the country.
Therefore, cost audit adds value both at the firm level and the macro level.
Let us not crib for the multiplicity of audit because they are complementary in nature. Let
all stakeholders work together to improve the audit quality.
Question:
Enumerate “Cost audit brings out the weaknesses in the cost accounting system and draws
attention to wastes and thus, improves the competitiveness of the business”.
Source: http://www.business-standard.com/india/news/asish-k-bhattacharyya-is-multiplicityaudit-
bad/496533/

8.6 Summary

 With the emergence of accountability as an important aspect of business enterprise whether
in the public sector or in the private sector, the auditing of accounts has assumed enormous
significance.

 The cost audit is an important system in the auditing, because the cost audit is also a well-
managed examination of books and accounts by the learned auditors.

 Whether the audit is internal or periodic, it aims at providing suggestions regarding
improvements in effective cost account plan and reduces the additional cost audit work.
 The existence of cost audit has a great moral influence on the employees, as a result of
which the efficiency is increased.
 Cost audit reports raise the status of cost accountant. Being external, it helps in improving
cost methods and can solve specific problems which ultimately raise the status of cost
department.
 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.
 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.
 A cost auditor has the same rights in relation to an audit conducted by him under section
233-B as an auditor of a company under section 227(1).

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