CIMA, London the verification of cost accounts and a check on the adherence to the cost accounting plan

2 functions: Verify the cost accounts have been properly maintainedCheck the adherence to the cost accounting plan

Two aspects of Cost Audit:

Propriety Audit

Efficiency Audit or Performance Audit

Detection of errors and fraudHelps in fixation of priceEnsuring optimum utilization of resourcesProper method for Inventory ValuationChannelizing the resources on most productive & profitable areas

Cost Auditor- appoint by BODCost Auditor- submit the audit report, in triplicate to the Central Govt. & Co.Copy of Cost Audit report has to be attached to Income Tax Return Statutory Cost Audit can be conducted only by a cost accountant holding a certificate- ICWA

financial audit means the verification of the financial statements of a legal entity. The audit gives a reasonable assurance that the financial statements exhibits a true and fair view of state of affairs of the business.

Financial AuditCost AuditAudit of financial account has been compulsory under companies Act 1956.Cost Audit is not compulsory in all companies expect in certain specified companies which is notified by central government from time to time under sec 233 B.The Financial Auditor is required to report whether the financial statement exhibits true and fair view of state of affairs of the businessCost Auditor has to check the propriety of each item of expenditure and certify whether they have been incurred prudently or not.Financial Auditor sees whether the expenses incurred are supported by proper vouchers Cost Auditor ensure that the expenses incurred have been aimed at achieving better results.Financial Auditor submit his report to the shareholders.Cost Auditor reports to the Board of DirectorsFinancial Audit is mainly to check the arithmetical accuracy of different books of accounts. Cost Auditor sees also whether suitable steps have been taken to reduce the cost of productionThe work of Financial Auditor is in the office The work of Cost Auditor is in the factory

ADVANTAGES TO MANAGEMENTHelps to control on different elements of costHelps in decision makingHelps in reducing priceGet advice on day to day activitiesHelps in budgetary control

Status will go highImprove costing efficiencyCost accounts can be reconciled with financial accounts

To know the efficiency or inefficiency of managementTo know about the utilization of resourcesTo know about the productivity of material, labour and machineFair return on investment

Ensures about the correctness of the cost data in case of cost plus contractsCorrect cost data helps government in fixing fair price of the productsHelps contractors in case of escalation clauseCost audit pinpoints the areas where economy and efficiency can be achievedHelps consumers to get goods at fair price

Expensive luxury.Secrecy in cost.Duplication of work.Shortage of cost accountants.Some accounts audited once by financial auditors.

Technique used by a cost accountant in the performance of his job.Some of the techniques are; vouchingChecking and tickingTest checkingWorking papersAudit notes Questionnaires

Meaning: The examination review of various policies and action of the management on the basis of certain specified objectives.

Definition: Management audit is independently examination of organisation structure ,operation function, analyzing goals, plan , policies, activities, weaknesses and evaluation of earning capacity of the management

To identify the level of achievement of the main objectives of organisation .

To indentify the defects or irregularities of management executives .

To ensure that the management is going to achieve the objectives.

To help the management to do efficient administration of the operations.

Management functions and processes in order to improves its efficiency.

A change in the method of purchase in beneficial to the company.

Expected top suggest that change in the system of running the business would be beneficial to the company.

The success or failure of business or company depends fully on the quality of management

Management audit provides information about strong and weak point of the management after reviewing policies and programs. So, it helps to the smooth operation of an organization.

Management audit provides suggestions to the management which helps to maintain effective management.

Management audit helps the management providing suggestions to attain goal of an organization.

Management auditor cannot understand the practical problems. So, the suggestions provided by them is theoretical but not practical.

Scope of management audit is vague. So, it does not help to achieve specific goal.

Generally management give more emphasis on maintaining books of accounts rather than concentrating on other factors. So, it consumes time of farsighted management.

No qualification have been prescribed

Generally CA

Knowledge of accountancy, financial administration & management

The get valuable suggestions for improving the management executives

Management AuditCost AuditIt is a comprehensive critical review of all aspects of management processesIt is a verification of correctness of cost accounts and of the adherence to cost accounting plans.The Management Audit is not a statutory requirement.In certain industries Cost Audit is compulsory and a statutory requirement as per government notificationIt is not a regular feature. Management may decide to go for management audit whenever need ariseIt is a regular feature and is conducted every year.The Management Auditor critically examines the policies and objectives of management and report on their sustainabilityThe Cost Auditor checks cost accounts only. The management auditor need not possess any specific qualification. He must have knowledge and experience in the field of accountancy, management and financial administration. The cost auditor must possess certain requisite qualification as per the provision of the companies act, 1956.

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