Page 255 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes To Management

(i) Management will get reliable data for its day-to-day operations like price fixing, control,
decision-making, etc.
(ii) A close and continuous check on all wastages will be kept through a proper system of
reporting to management.
(iii) Inefficiencies in the working of the company will be brought to light to facilitate corrective
action.

(iv) Management by exception becomes possible through allocation of responsibilities to
in-dividual managers.
(v) The system of budgetary control and standard costing will be greatly facilitated.
(vi) A reliable check on the valuation of closing stock and work-in-progress can be established.

(vii) It helps in the detection of errors and fraud.
To Society

(i) Cost audit is often introduced for the purpose of fixation of prices. The prices so fixed are
based on the correct costing data and so the consumers are saved from exploitation.
(ii) Since price increase by some industries is not allowed without proper justification as to
increase in cost of production, inflation through price hikes can be controlled and
con-sumers can maintain their standard of living.

To Shareholder

Cost audit ensures that proper records are kept as to purchases and utilization of materials and
expenses incurred on wages, etc. It also makes sure that the valuation of closing stocks and
work- in-progress is on a fair basis. Thus the shareholders are assured of a fair return on their
investment.

To Government

(i) Where the Government enters into a cost-plus contract, cost audit helps government to fix
the price of the contract at a reasonable level.
(ii) Cost audit helps in the fixation of ceiling prices of essential commodities and thus undue
profiteering is checked.
(iii) Cost audit enables the government to focus its attention on inefficient units.
(iv) Cost audit enables the government to decide in favour of giving protection to certain
industries.

(v) Cost audit facilitates settlement of trade disputes brought to the government.
(vi) Cost audit and consequent management action can create a healthy competition among
the various units in an industry. This imposes an automatic check on inflation.

13.2.3 Functions of Cost Auditor

The Institute of Cost and Works Accountants of India has detailed the principal functions of a
cost auditor by way of comparison with the functions of the auditor of financial accounts. The
principal functions of cost auditor, according to the aforesaid Institute are the following:

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