Things You Should Know About Cost Audit
Cost audit refers to the complete verification of the cost records, statements and data. It also ensures whether the cost accounting is carried out according to the prescribed cost accounting procedures and plan. It keeps a check on all the cost reports and statements, to avoid any mistake, fraud or any kind of malpractices in cost accounting.
Main objectives of cost audit
- To set an accurate costing data without any error or mistake.
- To ensure that the cost accounting principles are strictly followed.
- To keep a check on fraudulent activities and malpractices.
- It helps the firm to make perfect decisions on essential matters.
- It helps in the determination of the actual cost of a product or service when it is ready for sale.
- It reduces the burden of an external auditor by avoiding detailed checking.
- To monitor whether all features of a cost audit is held.
- Timely execution of cost strategies.
- Evaluation of strength and weakness of the cost department in the firm.
- To cut down unwanted expenditure incurred by the firm during the production.
Importance of cost audit
Cost audit evaluates every minute details of the expenditure incurred by the firm while producing goods or services. The main objectives of the cost audit are:
Identifying unproductive costs - It helps in classifying the cost whether they are productive or unproductive, through which the firm can reduce the unproductive cost through which they can increase the profits.
Formulation and implementation of strategies - Through cost audit the firm can oversee the changes in the cost and they can draw up new plans and strategies to meet the increasing cost, and the firm can make advance changes in the plans.
Facilitates budgeting - Cost audit reports of past years may help the company to create the budget for the future, as the past cost audit reports will give the firm information about the changes in the trends and variations in the cost etc. it may act as an essential tool to guide in budgeting.
Helps in reduction of indirect or overhead costs - Overhead cost includes insurance, repair, administrative costs, rent etc. can be reduced through cost audit if required.
Pricing of products - On the basis of the cost audit report the firm can change the price of the commodities, to earn adequate profits.
What if you don’t conduct a cost audit?
Let us consider that, we own a firm manufacturing automobiles in UAE, and your company is facing a shortage in finance due to increase in cost of production, and we find it difficult to manage the finance adequately, then there is a need to conduct a cost audit in order to find the reasons behind the shortage of finance or increase in expenditure. Whereas if you ignore conducting a cost audit then your firm will be under a drastic financial crisis because finance is the life blood of a business and one should adequately and efficiently use it. So by conducting the cost audit you can identify the sections where the finance is excessively used and the areas where the finance is wasted. Through cost audit we can cut off those activities which incur a lot of expenditure. And the firm can bring changes in the strategies they adopt in producing the goods and services, such as they can reduce the number of workers if they are dependent on human labor, or they can stop the production of those goods which are not in demand and incur huge costs. It may also be useful at the time of an external audit, the firm may not face any problem in presenting the cost records and statements, because the truthfulness of those records were earlier ensured during the cost audit and the firm might not need to pay any kind of penalties in future.
How CDA helps in cost audit?
Our highly dedicated and sincere team is ready to assist the clients at any time regarding their queries and needs about accounting, book-keeping, VAT registration, tax consultancy, bad-debts accounting and auditing. CDA provides well experienced and professionalized experts dealing with all the requirements of the clientele so that the clients receive what they expect in a personalized manner.
This brings us to the conclusion of our discussion on the importance and types of cost audit. Do you have further queries on cost audit? you can contact us for a free one-hour consultation.