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CIMA London the verification of cost accounts and acheck on the adherence to the cost accounting plan

2 functions: Verify the cost accounts have been properlymaintained Check the adherence to the cost accounting plan

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Two aspects of Cost Audit: Propriety Audit Efficiency Audit or Performance Audit

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Detection of errors and fraud Helps in fixation of price Ensuring optimum utilization of resources Proper method for Inventory Valuation Channelizing the resources on most productiveprofitable areas

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Cost Auditor- appoint by BOD Cost Auditor- submit the audit report in triplicateto the Central Govt. Co. Copy of Cost Audit report has to be attached toIncome Tax Return Statutory Cost Audit can be conducted only by a costaccountant holding a certificate- ICWA

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financial audit means the verification of thefinancial statements of a legal entity. The auditgives a reasonable assurance that the financial

statements exhibits a true and fair view of state of

affairs of the business.

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Financial Audit Cost Audit

Audit of financial account has been

compulsory under companies Act 1956.

Cost Audit is not compulsory in all

companies expect in certain specified

companies which is notified by centralgovernment from time to time under sec

233 B.

The Financial Auditor is required to report

whether the financial statement exhibits

true and fair view of state of affairs of the

business

Cost Auditor has to check the propriety of

each item of expenditure and certify

whether they have been incurred prudently

or not.

Financial Auditor sees whether the expenses

incurred are supported by proper vouchers

Cost Auditor ensure that the expenses

incurred have been aimed at achieving

better results.

Financial Auditor submit his report to the

shareholders.

Cost Auditor reports to the Board of

Directors

Financial Audit is mainly to check the

arithmeticalaccuracy of different books of

accounts.

Cost Auditor sees also whether suitable steps

have been taken to reduce the cost of

production

The work of Financial Auditor is in the

office

The work of Cost Auditor is in the factory

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Financial Audit is conducted every year in

all companies

Cost Audit may be conducted only for a

particular year and even for a specific

jobs.

Financial Audit does not measure the real

efficiency of an organization.

Cost Audit measure the efficiency of the

organization , especially production

processes.

Financial Auditor verifies whether the

closing stock has been properly valued.

The Cost Auditor looks into the methods

followed and the adequacy or otherwise

of the stock to meet the requirements of

the organization.

Financial Audit is a sort of postmortem

audit

Cost Audit is forward looking with

suggestion for future.

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Helps to control on different elements of cost Helps in decision making Helps in reducing price Get advice on day to day activities Helps in budgetary control

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Status will go high Improve costing efficiency Cost accounts can be reconciled with financial

accounts

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To know the efficiency or inefficiency of management To know about the utilization of resources To know about the productivity of material, labour

and machine Fair return on investment

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Ensures about the correctness of the cost data in caseof cost plus contracts Correct cost data helps government in fixing fair priceof the products Helps contractors in case of escalation clause Cost audit pinpoints the areas where economy and

efficiency can be achieved Helps consumers to get goods at fair price

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Expensive luxury. Secrecy in cost. Duplication of work. Shortage of cost accountants. Some accounts audited once byfinancial auditors.

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Technique used by a costaccountant in the performance ofhis job. Some of the techniques are;vouching

Checking and tickingTest checkingWorking papersAudit notesQuestionnaires

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Meaning : The Examination review of various

policies and action of the Management on the basisof certain specified objectives.

Definition:-Management Audit is Independently

Examination of organisation structure, operation

function ,Analyzing goals ,plans ,Policies, Activities,weaknesses and Evaluation of earning capacity of theManagement.

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To identify the level of achievement of the mainobjectives of organisation .

To indentify the defects or irregularities of

management executives .

To ensure that the management is going to achieve theobjectives.

To help the management to do efficient administrationof the operations.

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Management functions and processes in order to improvesits efficiency.

A change in the method of purchase in beneficial to the

company.

Expected top suggest that change in the system of runningthe business would be beneficial to the company.

The success or failure of business or company depends fullyon the quality of management

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Management audit provides information about strong andweak point of the management after reviewing policies andprograms. So, it helps to the smooth operation of an

organization.

Management audit provides suggestions to the managementwhich helps to maintain effective management.

Management audit helps the management providingsuggestions to attain goal of an organization.

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Management auditor cannot understand the practicalproblems. So, the suggestions provided by them istheoretical but not practical.

Scope of management audit is vague. So, it does nothelp to achieve specific goal.

Generally management give more emphasis on

maintaining books of accounts rather thanconcentrating on other factors. So, it consumes time offarsighted management.

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No qualification have been prescribed

Generally CA

Knowledge of accountancy, financial administration &

management

The get valuable suggestions for improving themanagement executives

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Management Audit Cost Audit

It is a comprehensive critical review of all

aspects of management processes

It is a verification of correctness of cost

accounts and of the adherence to cost

accounting plans.The Management Audit is not a statutory

requirement.

In certain industries Cost Audit is

compulsory and a statutory requirement

as per government notification

It is not a regular feature. Management

may decide to go for management auditwhenever need arise

It is a regular feature and is conducted

every year.

The Management Auditor critically

examines the policies and objectives of

management and report on their

sustainability

The Cost Auditor checks cost accounts

only.

The management auditor need not

possess any specific qualification. He

must have knowledge and experience in

the fieldof accountancy, management

and financial administration.

The cost auditor must possess certain

requisite qualification as per the

provision of the companies act, 1956.

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It covers wide areas of managementsactivities and may be for more than one

financial year.

The cost audit is conducted for everyfinancial year separately.

There is no time limit for the submission

of management audit report

A time limit has been fixed by the law for

submission of cost audit report.

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1. VOUCHINGInspection by the auditor of a documentary

evidence supporting and substantiating a transaction2. CHECKING AND TICKING

Check marks or tick marks are used forcalculations ,posting etc3. TEST CHECKING

Auditor has to check a small part of the workon the basis of random sampling.

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4. WORKING PAPERSWorking papers include copy of office manual,copies of important decisions and procedures etc.5.AUDIT NOTESAuditor has to make a note in the course ofaudit and he will seek clarifications from theofficials.

6. QUESTIONNAIRESAuditor should make questionnaire aboutimportant elements of cost.

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No standard pattern. Affected by:Nature of the business.Size of the business.

Attitude of the

management.

Existing system.

Specific to the unit concern. In detail.

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Areas included:Inventory of stores.

Work-in-progress.Labour.

Overheads.

Selling, distribution andadministrative expenses.

Capital expenditure.

Utilization of capacity.

Plant and equipments.

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An auditor appointed to conduct an auditof cost records. An individual cost accountant or a firm ofcost accountants with at least two partners.

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To be a cost accountant within the meaning of theCost and Works Accountants Act, 1959. To hold a certificate of practice issued by the Institute

of Cost and Works Accountants of India.

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A person who has been appointed to audit theaccounts of the company A body corporate. An officer or employee of the company. A person who is partner, or who is in the employmentof an officer or employee of the company. A person who is indebted to the company for an

amount exceeding Rs.1,000.

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Appointed by the Board of Directors with the previousapproval of the central government . Validity only for the year for which he has beenappointed.