How to do Cost Audit in India?
Cost Audit is the process for verifying the cost allocation of each product or Services comprising of labor cost, manufacturing cost or any other item of cost as applicable. Cost Audit is a methodical and reliable verification of the accounts and records, to maintain the accounts according to the Cost Accounting Standards.
Types of Cost Audit
- To Assist Management:
The main purpose of this audit is to give proper, relevant and accurate information to the Management to assist in taking the important decision. In this Audit, a report is submitted suggesting certain ways to reduce the cost of production, guidance to the management for increasing the efficiency in the manufacturing unit, any loss making unit and to make the improvement in the accounting plan.
- On behalf of Government:
Government may appoint the cost auditor to conduct audit wherever required:
a. If the Government feels to carry out the audit as per the Companies Act, 2013
b. To analyses the certain amount of cost if the government is approaching certain financial help.
c. To fix a certain amount of cost while preparing for the tender.
- On behalf of Tribunals:
Sometimes, Labor Tribunals may direct the cost auditor to settle the disputes for more wages, bonuses, shares in profit, etc. The Income tax department may direct the audit of cost account to get the correct profit.
- Cost Audit under Statute:
As per the Companies Act, 2013 there are certain classes of Companies that need to carry the audit to get the accounts audited.
- Statutory Cost Audit:
As per the statutory rules and Act it is mandatory for the Company to carry out the Audit.
Benefits of Cost Audit in India
- It helps in the detection of errors and fraud.
- Systematically smoothens the work of accounting.
- Brings the Cost of product at the minimum level.
- Helps to maintain the standard budgetary cost.
- Enables the management to take the decision accurately.
- Keep the management aware that the Accounts are prepared according to Cost Accounting standards or not.
Applicability of Cost Audit under the Companies Act, 2013
Under the Companies Act, 2013, it has categorized the Company industrial activity into two parts i.e.
- Regulated Sector (Table A): It covers the industry like Petroleum products, Drugs and Pharmaceuticals, Fertilisers, Sugar and Industrial alcohol, etc.
- Non-Regulated Sector (Table B): It covers the Industry like Turbo Jets and turbo propellers, Arms and Ammunitions, Cement, coffee and tea, Ores and Mineral products, Milk Powder, tyres and tubes, etc.
Created & Posted By Aashima
Accounts Executive at TAXAJ
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