Objectives of Cost Audit

Objectives of Cost Audit:


Cost Audit has both general and social objectives. The general objectives can be described to include
the following :
• Verifi cation 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.
• Verifi cation of the cost of each “cost unit” and “cost center” to ensure that these have been
properly ascertained.
• Determination of inventory valuation.
• Facilitating the fi xation of prices of goods and services.
• Periodical reconciliation between cost accounts and fi nancial accounts.
• Ensuring optimum utilization of human, physical and fi nancial 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-fi rm 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 fi xation of reasonable prices of goods and services produced by the
enterprise.
• Improvement in productivity of human, physical and fi nancial resources of the enterprise.
• Channelising of the enterprise resources to most optimum, productive and profi table 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 ineffi ciency and mismanagement, if any for the benefi t of shareholders,
consumers, etc., such that necessary corrective action could be taken in time.