Explain the 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: 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.