Question

Is cost auditing an instrument for controlling error and fraud in the production process of the organization? Explain its core objectives.

Answer 1

Solution :

Yes, the cost auditing is aimed at examining and verification of cost accounting records to ensure that they are in adherence to the cost accounting plans, principles and practices.

The cost audit will facilitate efficiency audit which will enable the audit to verify whether the funds invested yield optimum return for the capital employed.

The following are the objectives of the cost audit :

1) Determining accurate cost of jobs and comparing the results with the previous years.

2) The primary objective is to determine whether the cost of production includes only that factors which are necessary for production and to evaluate whether the resources are used efficiently.

3) To verify the accuracy of the cost accounting records and evaluate and detect the frauds and errors in the cost accounting.

4) To facilitate comparison of the costs with the industrial standards set.

5) It serves as a tool to determine the managerial efficiency. The general working of the costing department is evaluated and suggestions are provided for improvement.

6) To verify whether the organization has followed the basic principles of cost accountancy and whether the organization has maintained proper cost accounting records as required by the statue.