This document discusses the process and procedures for conducting a cost audit. It begins by defining cost audit as the verification of cost accounting records to ensure accuracy and adherence to principles. It then outlines the applicability of cost audits based on company turnover thresholds. The cost audit procedure involves three main steps - review, verification, and reporting. In the review step, the cost auditor familiarizes themselves with the company and costing system. Verification involves auditing specific cost elements like materials, overhead costs, and production data. Finally, the cost auditor prepares an audit report summarizing the results and providing any observations or suggestions.

1. Advance Auditing
Cost Audit Procedures
Presented By:
Varsha Rustagi
2016mcom016

2. Cost Audit Introduction
 Cost Audit represents the verification of cost accounts and
check on the adherence to cost accounting plan. Cost Audit
ascertain the accuracy of cost accounting records to ensure that
they are in conformity with Cost Accounting principles, plans,
procedures and objective. Cost Audit comprises following;
1) Verification of the cost accounting records such as the
accuracy of the cost accounts, cost reports, cost statements, cost
data and costing technique and
2) Examination of these records to ensure that they adhere to
the cost accounting principles, plans, procedures and objectives.

3. Applicability of Cost Audit
 Applicability of cost audit is based on turnover of the
total company or meeting the other conditions laid
down in the respective Cost Audit Orders issued by the
Cost Audit Branch, Ministry of Corporate Affairs.
Subject to meeting total turnover criterion or other
criteria laid down in the respective Cost Audit Orders, if
any activity of a company is covered under cost audit
order Nos. 52/26/CAB-2010 dated 2nd May 2011 or
30th June 2011 or 24th January 2012, the cost audit
will be applicable to that company irrespective of the
turnover of that particular activity.

4. Cost Audit Procedure
Cost audit comprises following three steps;
 Review
 Verification
 Reporting

5. REVIEW
The cost auditor should familarise himself with the
memorandum and articles of association, past audit reports
on the financial accounts, annual reports issued by the
board, the chairman’s speech, etc.
The costing system in vogue in relation to the production
process.
The detailed knowledge of the flow of production process.
Review the cost accounts books.

6. • Careful study and evaluation the internal control
and operations.
Before audit work taken up,
review that all books are up to date
vouchers are filed serially
working sheets are available.
•
Knowledge of various standards issued by the
institute

7. Cost Accounting standards
 CAS1 Classification of Cost
 CAS 2 Capacity Determination
 CAS 3 Overheads
 CAS 4 Cost of Production for Captive
Consumption
 CAS 5 Average (equalized) Cost of
Transportation
 CAS 6 Material Cost
 CAS 7 Employee Cost
 CAS 8 Cost of Utilities
 CAS 9 Packing Material Cost
 CAS 10 Direct Expenses
 CAS 11 Administrative Overheads
 CAS 12 Repairs And Maintenance
Cost
 CAS 13 Cost of Service Cost Centre
 CAS14 Pollution Control Cost*
 CAS 15 Selling and Distribution
Overheads
 CAS 16 Depreciation and Amortisation
 CAS 17 Interest and Financing
Charges
 CAS 18 Research and Development
Costs
 CAS 19 Joint Costs
 CAS 20 Cost Accounting Standard on
Royalty and Technical Know-How Fee
 CAS 21 Cost Accounting Standard on
quality control
 CAS 22 Cost Accounting Standard on
manufacturing cost

8. A suitable program is made for auditing
The procedure and programme to be adopted for
audit and the various forms and documents used
for it should be laid down in Audit manual.
The audit programme should be drawn out in
detail, specifying each item of audit work to be
carried out.

10. VERIFICATION
Verification of capacities
Verification of Financial ratios
Verification of production data
Verification of cost of raw material consumed
Verification of cost of power and fuel
Verification of cost of employees
Verification of cost of stores
Verify provisions for depreciation
Verify overheads and allocation costs

11. Sales
Verification of abnormal, non-recurring and special
costs
Verification of cost statements
Royalty and technical aid payment
Reconciliation with financial books
Audit reports

12. REPORTING
 With the help of the working papers, an audit
report is issued on completion of audit.
 It should summarize the final result of audit.
 Certificate regarding correctness of the accounts
should be include in the report.
 The report should consist of notes, observations
and comments on the cost accounting system,
financial position,

13.  Reporting
 Stores and spare parts, depreciation, sales,
abnormal non- recurring costs, etc.
 The report may also highlight other points of
interest like factors responsible for the increase in
cost of production.
 Suggestion regarding improvements and
corrective measures to be taken.

16. THANKYOU