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 maintained Check the adherence to the cost accounting plan

Two aspects of Cost Audit:

Propriety Audit Efficiency Audit or Performance Audit

Detection of errors and fraud Helps in fixation of price Ensuring optimum utilization of resources Proper method for Inventory Valuation Channelizing the resources on most productive & profitable areas

Cost Auditor- appoint by BOD Cost 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 Audit Audit of financial account has been compulsory under companies Act 1956.

Cost Audit 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. Cost Auditor has to check the propriety of each item of expenditure and certify whether they have been incurred prudently or not.

The Financial Auditor is required to report whether the financial statement exhibits true and fair view of state of affairs of the business

Financial Auditor sees whether the expenses Cost Auditor ensure that the expenses incurred are supported by proper vouchers incurred have been aimed at achieving better results.
Financial Auditor submit his report to the shareholders. Financial Audit is mainly to check the arithmetical accuracy of different books of accounts. The work of Financial Auditor is in the office Cost Auditor reports to the Board of Directors Cost Auditor sees also whether suitable steps have been taken to reduce the cost of production The work of Cost Auditor is in the factory

Financial Audit is conducted every year in Cost Audit may be conducted only for a all companies particular year and even for a specific jobs.

Financial Audit does not measure the real efficiency of an organization.

Financial Auditor verifies whether the closing stock has been properly valued. Financial Audit is a sort of postmortem audit

Cost Audit measure the efficiency of the organization , especially production processes.
The Cost Auditor looks into the methods followed and the adequacy or otherwise of the stock to meet the requirements of the organization. Cost Audit is forward looking with suggestion for future.

Helps to control on different elements of cost Helps in decision making Helps in reducing price Get advice on day to day activities Helps in budgetary control

Status will go high Improve costing efficiency Cost accounts can be reconciled with financial accounts

To know the efficiency or inefficiency of management To know about the utilization of resources To know about the productivity of material, labour and machine Fair return on investment

Ensures about the correctness of the cost data in case of cost plus contracts Correct cost data helps government in fixing fair price of the products Helps contractors in case of escalation clause Cost audit pinpoints the areas where economy and efficiency can be achieved Helps 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; vouching Checking and ticking Test checking Working papers Audit 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 ,plans ,Policies, Activities, weaknesses and Evaluation of earning capacity of the Management.

To identify the level of objectives of organisation .

To indentify the defects management executives .

achievement of the main

or irregularities of

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 Audit

Cost Audit

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

It covers wide areas of managements activities and may be for more than one financial year.
There is no time limit for the submission of management audit report

The cost audit is conducted for every financial year separately.

A time limit has been fixed by the law for submission of cost audit report.

1.

VOUCHING Inspection by the auditor of a documentary evidence supporting and substantiating a transaction

2. CHECKING AND TICKING Check marks or tick marks are used for calculations ,posting etc 3. TEST CHECKING Auditor has to check a small part of the work on the basis of random sampling.

4. WORKING PAPERS Working papers include copy of office manual ,copies of important decisions and procedures etc. 5.AUDIT NOTES Auditor has to make a note in the course of audit and he will seek clarifications from the officials. 6. QUESTIONNAIRES Auditor should make questionnaire about important elements of cost.

No standard pattern. Affected by:

Nature of the business. Size of the business. Attitude of the management. Existing system.

Specific to the unit concern. In detail.

Areas included:

Inventory of stores. Work-in-progress. Labour. Overheads. Selling, distribution and administrative expenses. Capital expenditure. Utilization of capacity. Plant and equipments.

An auditor appointed to conduct an audit of cost records. An individual cost accountant or a firm of cost accountants with at least two partners.

To be a cost accountant within the meaning of the Cost and Works Accountants Act, 1959. To hold a certificate of practice issued by the Institute of Cost and Works Accountants of India.

A person who has been appointed to audit the accounts of the company A body corporate. An officer or employee of the company. A person who is partner, or who is in the employment of an officer or employee of the company. A person who is indebted to the company for an amount exceeding Rs.1,000.

Appointed by the Board of Directors with the previous approval of the central government . Validity only for the year for which he has been appointed.