Page 262 - DCOM509_ADVANCED_AUDITING

Unit 13: Tax and Cost Audit

 While the auditor has to apply the basic principles of audit he has to keep in mind that the Notes
requirements of VAT audit are different and accordingly he should design his audit
programme.
 While performing the audit under VAT law the auditor is expected to conduct the audit
presuming himself to be the tax assessor. His audit report will therefore have to be
comprehensive commenting on each and every aspect which goes to the root of
quantification of tax liability. The auditor is expected to give his opinion on the adequacy
of accounting records, correctness and completeness and arithmetical consistency of returns
filed.

 The origin of the concept of cost audit could be traced to the Second World War period
when the practice of assigning cost plus contracts started. However, probably India is the
only country in the “free” world where cost audit is statutorily prescribed.
 Cost audit can offer valuable assistance to the management in its decision making process
since it ensures reliable cost accounting data and information. The management will be in
a position to know what price is to be fixed for a product, whether the wastages are
avoidable, whether to re-organize purchase or sales or inventory systems to make the
work more efficient and so on.
 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.

13.4 Keywords

Assessee: Income Tax Act 1961 (Act no. 43) defines 'assessee' as a person by whom any tax or any
other sum of money is payable.
Cost Records: All ledgers, supporting records, schedules, reports, invoices, vouchers, and other
records and documents reflecting the cost of projects, jobs, production centres, processes,
operations, products, or services, or the cost of any of the component parts thereof.

Deed of Trust: A written instrument legally conveying property to a trustee often used to secure
an obligation such as a mortgage or promissory note.
Tax Audit: Type of forensic audit, performed by the government appointed auditors, to determine
if the appropriate taxes were paid in full by the entity being audited.
Tax deducted at source (TDS): A method of tax collection on income assessments in India.
Closing stock: A business's remaining stock at the end of an accounting period.

Turnover: In accounting, it is defined as the number of times an asset is replaced during a
financial period.
Value Added Tax (VAT): An indirect tax on consumption levied at each discrete point in the chain
of production and distribution, from raw material to end use.

13.5 Review Questions

1. What is cost audit? Explain in brief.
2. What do you mean by audit of public trusts?

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