Cost Audit by CMA

What is Cost Audit?

A cost audit represents the verification of cost accounts and checking on the adherence to cost accounting plan. Cost audit ascertains the accuracy of cost accounting records to ensure that they are in conformity with cost accounting principles, plans, procedures and objectives. A cost audit comprises the following:

• Verification of the cost accounting records such as the accuracy of the cost accounts, cost reports, cost statements, cost data and costing technique


• Examination of these records to ensure that they adhere to the cost accounting principles, plans, procedures and objective


• To report to the government on optimum utilisation of national resources





 
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• Statutory Requirement
  
  Provisions relating to cost audit are contained under section 148 of the Companies Act, 2013. The salient feature of section 148 are narrated here under –
  
  1. Central Government may order the certain class of companies, engaged in the production of such goods or provision of such service, to maintain particulars relating to utilization of material or labour or to other items of cost to be included in the books of accounts of the companies;
  
  2. Central Government may direct certain class of companies, based on the net worth or turnover of the companies, to get an audit of cost records of such companies by a Cost Accountant in practice ;
  
  3. The cost accountant, who shall contact the audit of cost records of the company, needs to be appointed by the Boards and remuneration of such cost accountant needs to be fixed by the Board on the basis of the determination by the members;
  
  4. The person appointed as auditor of the company cannot be appointed for conducting an audit of cost records of the company;
  
  5. The company needs to submit to the Central Government a copy of cost report, within a period of 30 days from the date of receipt of the copy of cost audit report, along with full information and explanation on every reservation / qualification contained in the report.
  
  Objectives of cost audit





 
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• Prospective objective: Under which cost audit aims to identify the undue wastage or losses and ensure that costing system determines the correct and realistic cost of production.


• Constructive objectives: Cost audit provides useful information to the management regarding regulating production, economical method of operation, reducing cost of operation and reformulating cost accounting plans.


• Other objectives:
  
  
  1. The basic objective of cost audit is to ensure that the cost of production as well as cost of sales includes only those factors which are absolutely necessary and that those factors are used in the most efficient way.
  
  
  2. To verify that cost accounts/records are accurate.
  
  
  3. To detect all errors or frauds in cost records.
  
  
  4. To introduce some sort of internal audit with a focus on costs to reduce the work of financial auditor.
  
  
  5. Cost system must be different for different objectives and the cost auditor designs a system which works best and quickest.
  
  
  6. To see that the organisation maintains proper cost books, accounts and records either required by law or otherwise as a managerial decision.
  
  
  7. To verify that the basic principles of cost accountancy or related rules framed thereto to implement certain statutory provisions are properly carried out in maintaining cost accounts in the right manner.
  
  
  8. To report on the optimum utilisation of national resources, to the government.
  
  
  
  
  
   
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