Cost Audit - Basics

Cost Audit - Basics

Cost Audit involves an examination of cost books, cost accounts, cost statements and subsidiary and
prime documents with a view to satisfying the auditor that these represent true and fair view of the
cost of production. This includes the examination of the appropriateness of Cost Accounting system.
According to Chartered Institute of Management Accountants, London (CIMA), cost audit is “the
verification of the correctness of cost accounts and of the adherence to the cost accounting plan”.
In other words, cost audit is the verification of the cost of production of any product, service or activity
on the basis of accounts maintained by an enterprise in accordance with the accepted principles of
cost accounting. This definition of Cost Audit is relevant to the voluntary Cost Audit without any statutory
backing.
The Institute of Cost Accountants of India on the other hand, 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.”
Thus the concept and scope of cost audit as defined in India is more specific and lays emphasis on the
evaluation of the efficiency of operations and the propriety of management actions as introduced by the
Government of India for specified industries. In this sense, cost audit in India appears to be synonymous
with efficiency audit mainly as a guide for management policy and decision making besides being a
barometer of actual performance.