Chapter 15

Cost Audit And Cost Accounting Standards

Cost Audit
Verification of cost accounts and a check on the adherence to the cost accounting plan. ICWAI - Cost audit checks the minute details when the work is still in progress. It is a preventive measure, a barometer of performance, to guide management policies and decisions

Management Accounting By Paresh Shah Oxford University Press

Features
Examination of the operation of the system Verification Study of Distribution of Expenses Examination of various labour charges Investigation Tests of method of costing

Management Accounting By Paresh Shah Oxford University Press

Functional Cost Audits

Efficiency audit (Profitability audit) Propriety audit Operational audit Voucher audit Regulation audit

Management Accounting By Paresh Shah Oxford University Press

Value Of Costing Records To The Auditors Of Financial Accounts

Valuation of W-I-P Maintenance of Job record time Double check on the entries made in Accounts Proper and detailed recording of receipt and issue of materials Closing stock of finished goods

Management Accounting By Paresh Shah Oxford University Press

Statutory Cost Audit

Besides the business entities themselves, the government is also interested in assuring itself of the reliability of the cost data. The government uses the data provided by the business firms to take decisions relating to regulatory prices, export subsidies, levy of excise duties, and degree of protection to be afforded to the domestic industries, etc. The government is also interested in ensuring that the prices charged to the consumers in respect of essential goods and services are not unreasonable and exploitative.
Management Accounting By Paresh Shah Oxford University Press

Maintenance of Cost books

It is required that every company keeps a proper book of accounts at their registered offices. The central government has now acquired powers to order cost audit in case of those companies which are required to maintain cost accounts under Section 209 (1) (d) and which are engaged in production, processing, or mining activities, etc.
Management Accounting By Paresh Shah Oxford University Press

Procedure for cost audit

Vouching - the inspection which is made by the auditor, the documentary evidence which substantiates a financial transaction. Checking and ticking - It includes the totals of each page, document or ledger, checking of arithmetical accuracy of bills, vouchers, records, reports, etc.

Management Accounting By Paresh Shah Oxford University Press

Procedure for cost audit

Test checks This method is employed to check the arithmetical accuracy of figures. Test check method is employed where the transactions are numerous and the audit checks are few. Audit notes and questionnaire During the course of audit, the auditor records on working papers the material facts observed by him. This also includes queries and questionnaires issued by him to the management for eliciting clarification and final answers.
Management Accounting By Paresh Shah Oxford University Press

Cost audit report

The cost auditor has to prepare a report after he has conducted the cost audit. This report has to be submitted to the Company Law Board and not to the Registrar of Companies. It is not sent to the registrar, as it may contain confidential and secret matters, which if disclosed may prove to be harmful to the company.
Management Accounting By Paresh Shah Oxford University Press

Advantages of Cost Audit

To the management To the shareholders To the Customers To the Government

Management Accounting By Paresh Shah Oxford University Press

Cost accounting standards

CAS are designed to achieve uniformity and consistency in the measurement, assignment, and allocation of costs to government contracts. Cost Accounting Standard Board CASB) set up by the Council of the Institute of Cost and Works Accountants of India (ICWAI).

Management Accounting By Paresh Shah Oxford University Press

Importance
CAS equips the profession with better guidelines on standard cost accounting practices. It assists the cost accountants in preparing uniform cost statements. It assists the management to follow the standard cost accounting practices in the matter of compliance of statutory obligations. It helps in compiling correct and reliable cost data. CAS helps in comparing the costs of production of different companies
Management Accounting By Paresh Shah Oxford University Press

CAS in India
The standards issued by CASB of ICWAI will be recommendatory in nature and every member of the institute is expected to honour the same. A standard will always make sure that it complies with the legal regulations in respect of the matter covered by it. However, a standard by its very nature will have to be more definite and specific than its legal requirements.
Management Accounting By Paresh Shah Oxford University Press

Summary of CAS in India

Classification of cost Capacity determination Overheads Cost of production for captive consumption Averaged transportation cost

Management Accounting By Paresh Shah Oxford University Press