OBJECTIVES OF COST AUDIT
Cost Audit has both general and social objectives. The general objectives can be described to include
the following:
Verification of cost accounts with a view to ascertaining that these have been properly maintained
and compiled according to the cost accounting system followed by the enterprise.
Ensuring that the prescribed procedures of cost accounting records rules are duly adhered to
Detection of errors and fraud.
Verification of the cost of each “cost unit” and “cost center” to ensure that these have been
properly ascertained.
Determination of inventory valuation.
Facilitating the fixation of prices of goods and services.
Periodical reconciliation between cost accounts and financial accounts.
Ensuring optimum utilization of human, physical and financial resources of the enterprise.
Detection and correction of abnormal loss of material and time.
Inculcation of cost consciousness.
Advising management, on the basis of inter-firm comparison of cost records, as regards the areas
where performance calls for improvement.
Promoting corporate governance through various operational disclosures to the directors.
Among the social objectives of cost audit, the following deserve special mention :
Facilitation in fixation of reasonable prices of goods and services produced by the enterprise.
Improvement in productivity of human, physical and financial resources of the enterprise.
Channelising of the enterprise resources to most optimum, productive and profitable areas.
Availability of audited cost data as regards contracts containing escalation clauses.
Facilitation in settlement of bills in the case of cost-plus contracts entered into by the Government.
Pinpointing areas of inefficiency and mismanagement, if any for the benefit of shareholders,
consumers, etc., such that necessary corrective action could be taken in time.
Cost Audit has both general and social objectives. The general objectives can be described to include
the following:
Verification of cost accounts with a view to ascertaining that these have been properly maintained
and compiled according to the cost accounting system followed by the enterprise.
Ensuring that the prescribed procedures of cost accounting records rules are duly adhered to
Detection of errors and fraud.
Verification of the cost of each “cost unit” and “cost center” to ensure that these have been
properly ascertained.
Determination of inventory valuation.
Facilitating the fixation of prices of goods and services.
Periodical reconciliation between cost accounts and financial accounts.
Ensuring optimum utilization of human, physical and financial resources of the enterprise.
Detection and correction of abnormal loss of material and time.
Inculcation of cost consciousness.
Advising management, on the basis of inter-firm comparison of cost records, as regards the areas
where performance calls for improvement.
Promoting corporate governance through various operational disclosures to the directors.
Among the social objectives of cost audit, the following deserve special mention :
Facilitation in fixation of reasonable prices of goods and services produced by the enterprise.
Improvement in productivity of human, physical and financial resources of the enterprise.
Channelising of the enterprise resources to most optimum, productive and profitable areas.
Availability of audited cost data as regards contracts containing escalation clauses.
Facilitation in settlement of bills in the case of cost-plus contracts entered into by the Government.
Pinpointing areas of inefficiency and mismanagement, if any for the benefit of shareholders,
consumers, etc., such that necessary corrective action could be taken in time.
