Cost audit may be defined as the verification of the correctness of cost accounts and a check on the adherence to the cost accounting plan. It is the audit process for verification of the cost of manufacture or production of any article on the basis of accounts relating to utilization of material, labor and other items of costs as maintained by an enterprise in accordance with the accepted principles of cost accounting.

Objects of Cost Audit:– Following are the objects of cost audit:-

  1. To verify the arithmetical accuracy of cost accountancy entries in the books of accounts.
  2. To find out whether the cost accounts have been properly maintained according to the principles of costing employed in the industry concerned.
  3. To verify that the cost statements are properly drawn up as per the records and that they represent a true and fair views of the cost of production and marketing.
  4. To find out whether each item of expenditure involved into the relevant   components of the goods manufactured or produced has been properly incurred or not.
  5. To find out whether the cost accounting procedures prescribed by the management have been adhered to or not.
  6. To detect any error or fraud which might have been committed intentionally or otherwise.

Who Can be the Cost Auditor

  • A Cost Accountant  as per the Cost and Works Accountant Act, 1959 and who is a in practice of cost audit, can be appointed as cost auditor.
  • A firm of cost accountants who is in practice of cost audit can be appointed as cost auditor.
  • Any cost accountant who is holding certificate of practice on part time basis, can not be appointed as cost auditor.
  • Any statutory auditor who is appointed under section 139 of act can not be appointed as cost auditor of the business firm.


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