A cost audit is a systematic examination of a company or organizations cost accounts and records to ensure that the cost of its products or services has been incurred efficiently and economically. The primary objective of cost audit is to ensure that the cost of production and sales includes only those factors that are necessary and that those factors are used in the most efficient way. The following are the key features of cost audit:
- 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 objectives.
- Reporting to the government on optimum utilization of national resources.
The cost audit is an examination of the efficiency of the minute details of expenditure while the work is in progress, and it does not constitute a post-mortem examination. The cost auditor can be appointed by the board of directors by taking prior permission of the government. Cost audit applies to all companies that produce goods or provide services mentioned in Table A and Table B of Rule 3 of the Companies (Cost Records and Audit) Rules 2014. Cost audit is an important and continuous process that a company has to execute properly during its entire existence in the market. An efficient cost audit by a company can lead to a lesser number of incidents of fraud and laundering. Nowadays, large companies organize half-yearly cost audits to be clear about cost-related outcomes.
