Sunday, May 11, 2014

Cost Audit and Cost Auditor

Cost Audit
It is an audit process for verifying the cost of manufacture or production of any article, on the basis of accounts as regards utilisation of material or labour or other items of costs, maintained by the company. In simple words the term cost audit means a systematic and accurate verification of the cost accounts and records and checking of adherence to the objectives of the cost accounting.
As per ICWA London’ “cost audit is the verification of the correctness of cost accounts and of the adherence to the cost accounting plan.”
The ICWAI defines cost audit as " 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"
From above definition of cost audit, it is clear that cost audit is a sytematic examination of cost accounts to verify correctness of cost accounting records.
As per the section 233 B of Company Law 1956, there is the provision for cost audit. Under this section, cost audit is compulsory for all the public and govt. companies which are associated with the processing and production. If there aggregate value of net worth exceeds 5 crores or total sale exceeds 20 crores, the cost audit is must.


Following are the advantages of cost audit
To The Management
a)      Cost audit helps in detection of errors and frauds.
b)      The management gets accurate and reliable data based on which they can make day-to-day decisions like price fixation.
c)       It helps in cost control and cost reduction.
d)      It facilitates the system of standard costing and budgetary control.
e)      It helps the management in inter-unit / firm comparison.
f)       It enables the management to identify loss making propositions.

To The Government
a)      Cost audit ensures efficient functioning of the industry. This in turn, nurtures a healthy competition among the different companies and paves a path for fast progress.
b)      It helps in identification of sick units and enables the Government to make relevant decisions.
c)       It helps in fixing prices in the case of essential commodities and checking undue profiteering.
d)      It enables to take decisions as to granting of subsidies, incentives and protection to various industries.
e)      It helps to take decisions as to levies, duties and taxes.

To the Society
a)      Cost audit enables the Government to fix prices of essential commodities. This safeguards the interests of the society.
b)      Cost audit enables the Government to keep a check on undue profiteering by the manufacturers and avoids artificial price rise due to monopolistic tendencies.

To the Shareholders
a)      Cost audit reveals whether any of the products of the company are making losses. Thus though the company making an overall profit, a loss making line may eating up the company’s profits. This is brought to the notice of the shareholders and the management is forced to take remedial measures, thereby making optimum utilisation of resources.
b)      Cost audit ensures that the shareholders get a fair return on their investments.

Qualification and Disqualification of Cost Auditor
Qualification: Section 233(B) of the Companies Act, 1956 provides that the Central Government may, if it considers necessary, direct that the audit of cost accounts kept by a company for a specifi ed product or activity under Section 209(1)(d) shall be conducted by an auditor who shall be a cost accountant within the meaning of the Cost and Works Accountants Act, 1959.
In other words, the Sec. 233B(1), in so far as it relates to qualifi cations of cost auditor provides that a person holding certifi cate of practice from the Institute of Cost and Works Accountants of India only can be appointed as a cost auditor. The cost auditor may be an individual cost accountant or a fi rm of cost accountants with at least two partners. A fi rm of cost accountants can be constituted with the previous approval of the Central Government/Institute as required under the regulation 113 of the Cost and Works Accountants Act, 1959 as amended from time to time and in which all the partners are cost accountants holding certifi cate of practice issued by the Institute of Cost and Works Accountants of India.
Section 224 (1-B) of the Companies Act, 1956 further provides that a person can be appointed as a cost auditor only if he is not in full time employment elsewhere.
A proviso to Section 233B(1) lays down that if the Central Government is of opinion that suffi cient number of cost accountants within the meaning of the Cost and Works Accountants Act, 1959 are not available for conducting the audit of the cost accounts of companies generally, the Government may, by notifi cation in the Offi cial Gazette, direct that, for such period as may be specifi ed in the said notifi cation, such Chartered Accountant within the meaning of the Chartered Accountants Act, 1949, as possesses the prescribed qualifi cations, may also conduct the audit of the cost accounts of companies.
Disqualification: The disqualifications of a person for being appointed or re-appointed for conducting the cost audit are detailed in sub Sections (a), (b) and (c) Section 233 (5) of the Companies Act, 1956 detailedas under:
(a) A person referred to in sub-Section (3) or sub-Section (4) of the Section 226 shall not be appointed or re-appointed for conducting the audit of the cost accounts of a company.
(b) A person appointed under Section 224 as an auditor of a company shall not be appointed or re-appointed for conducting the audit of the cost accounts of that company.
(c) A person, appointed for conducting the audit of cost accounts of a company, becomes after his appointment, to any of the disqualifications specified in clause 5(a) or 5(b) above, he shall on and from the date on which he becomes disqualified, shall cease to conduct the audit of the cost accounts of the company.

(Mention disqualification under sec. 224 and 226. Refer unit 3 for disqualification under section 224 and 226)

Labels

Absorption Costing (1) Accountancy (4) accounting for partnership firms (3) Accounting for Share Capital (3) accounts of non trading concern (3) advanced financial accounting (13) AHSEC (92) ahsec 11 (47) ahsec 12 (60) ahsec notes (89) AHSEC Question Papers (27) Assam Slet (10) bcfm (11) bills of exchange (6) branch accounting (3) Budgetary Control (3) Budgetary Control Notes (2) business communication (29) Business Environment Notes (7) business regulatory framewrok (47) Business Statistics Notes (23) cash flow statement (5) cbse 12 (19) cbse notes (27) commerce (13) company law (23) corporate accounting (33) corporate laws (14) cost accounting (63) cost and management accounting (34) cpt (36) cpt 200 (7) cpt notes (30) dibrugarh university (976) dibrugarh university notes (531) dibrugarh university question paper (341) dibrugarh university solved papers (211) dibrugarh university syllabus (47) direct tax law (49) eco - 01 (4) ECO - 02 (2) ECO - 03 (2) ECO - 05 (6) ECO - 06 (1) ECO - 07 (1) eco - 08 (4) eco - 09 (1) ECO - 10 (2) ECO - 11 (3) ECO - 12 (7) ECO - 13 (2) ECO - 14 (4) entrepreneurship (14) fianancial accounting (3) financial accounting (48) Financial Accounting Notes (11) financial management (18) Financial statements analysis (10) funds flow statement (3) guwahati university (304) guwahati university syllabus (54) Hire Purchase (5) Human Resource Management (14) icwai (38) icwai notes (39) ignou solved assignments (57) ignou solved question papers (63) income from house property (5) income from salary (4) Income Under the head Salaries (11) information technology (10) Installment Purchase (4) issue of shares (4) kkhsou (13) M.com (63) Management Accounting Notes (25) MCQ (11) paper I (1) paper II (9) paper III (1) principle of business mangement (16) Principles of Marketing Notes (16) royalty accounts (3) sale of goods act (8) semester I (157) Semester II (148) semester III (64) semester IV (133) semester V (101) semester VI (70) slet (13) Slet Ne (10) Small Business Management (5) solved assignments (22) UGC - NET: Commerce (08) (14) UGC - NET: Commerce (08) Paper II (3) UGC - NET: Commerce (08) Paper III (14) ugcnet solved question papers (23) Variance Analysis Notes (1)