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Unit 13: Tax and Cost Audit

(f) that allocation of overheads between finished products and unfinished products is Notes
in accordance with correct principles.
Presently we shall discuss in detail the aspects to be dealt with in the cost auditor’s report
pursuant to the Cost Audit (Report) Rules, 1968 as amended in 1996 and again in 2001. These
rules came into force from October 1, 2002. The aforesaid Rules have been issued pursuant to
Section 233B(4) of the Companies Act which requires the cost auditor to make a report on the
cost accounts and cost records maintained by the company.

It may be noted that the requirement of the statutory cost audit in our Companies Act is something
special, because statutes in most of the other countries do not contain a similar requirement. In
most of the countries the concept of cost audit as such is also non-existent and the objectives,
whatever they may be, are achieved by properly designing the scope and depth of internal
audit.

Task Pick up an audit report of a well known company through internet and see if it is
made as per VAT law.
The object with which the statutory requirement of cost audit has been included in the Companies
Act can only be ascertained by a study of the cost audit report requirements. They include
control over cost, wastage and losses, efficiency in the utilisation of human, material, and other
resources, determination of appropriate selling price, proper maintenance of cost records
appropriate use of the costing system, etc.
For determining the scope and extent of cost audit, the cost auditor will necessarily have regard
to the relevant costing records required to be maintained pursuant to Section 209(l)(d) of the
Companies Act, in respect of products manufactured by certain types of industries and the cost
sheets prescribed. The records are broadly based on the elements of cost and, therefore, there is
a great deal of similarity between the various records prescribed for various products. The cost
sheets, however, vary from product to product, having regard to the nature of the product and
the production process involved. The cost auditor will also have to pay special attention to the
reporting requirements laid down under the Cost Audit (Report) Rules.

Self Assessment

Fill in the blanks:
9. A cost accounting system designed to exercise control over cost may be different from the
one if the ………………. is to fix price.

10. The cost auditor should examine whether the methods laid down for ascertaining expenses
as …………… or ……………. are cases in point.
11. Cost audit, apart from having all the normal ……………… of audit namely vouching,
verification etc. has within its compass elements of efficiency audit.
12. The principal object of cost audit is to see that the cost data placed before the management
are …………… and reliable.

13. Cost audit is often introduced for the purpose of ……………….. of prices.
14. In most of the countries the concept of cost audit as such is also non-existent and the
objectives, whatever they may be, are achieved by properly designing the scope and
………………… of internal audit.
15. The records are broadly based on the elements of ......................................

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