Cost Audit :

The Institute of Cost and Works Accountants of India defines cost audit as “a system of audit introduced by the Government of India for the review, examination, and appraisal of the cost accounting records and attendant information, required to be maintained by specified industries.” According to CIMA, London, cost audit is “the verification of the correctness of cost accounts and of adherence to the Cost Accounting plan.” Thus cost audit  comprises of:

(i) The verification of the cost accounting records such as the accuracy of the cost accounts, cost reports, cost statements, cost data, costing techniques and

(ii) Examining these records to ensure that they adhere to the cost accounting, plans, procedures and objectives. Ministry of Corporate Affairs has issued mandatory cost audit orders on Companies engaged in Bulk drugs, fertilization, sugar, telecommunications, industrial alcohol, and electricity & petroleum and if in immediate previous year aggregate value of Net Worth exceeds the specified limits.

The cost auditor has to judge :

(i) Whether the planned expenditure is designed to give optimum results.

(ii) Whether the size and channels of expenditure were designed to produce the best results, and

(iii) Whether the return from expenditure on capital as well as current operations could be improved by some other alternative plan of action.

Cost Audit is useful for the purpose of Cost Control; Cost reduction and proper utilization of scarce resources. Moreover, cost audit also ensures that proper records are kept as to purchases and utilisation of material and expenses incurred on wages, overheads, etc. It also ensures that the unit has been run economically and efficiently. Section 148 of the Act contains provisions regarding cost audit and contains that a cost audit wherever conducted is in addition to statutory audit conducted under section 143.